Microsoft ATVI Merger Arbitrage

NASDAQ:ATVI   Activision Blizzard, Inc

Microsoft just made one of the largest-ever bids for a game studio. The company has announced plans to acquire Activision Blizzard for $95 per share, valuing the all-cash deal at an enormous $68.7 billion. The deal would make the combined entity the "third-largest" game company by revenue, according to Microsoft , and would put titles like Call of Duty, World of Warcraft and Candy Crush under the company's wing. Microsoft plans to add Activision Blizzard games to Game Pass as part of the deal.
The buyout is expected to close sometime in Microsoft's fiscal 2023 (no later than June 2023) if regulators and Activision Blizzard shareholders greenlight the move. The boards of directors for both companies have already approved the deal.

Activision Blizzard NASDAQ:ATVI stock has been hammered off its 2021 high amid scandals and the broader tech selloff. I've been an avid gamer and fanboy of Blizzard IP since I was a kid but I'll put all that aside and just look at this from the standpoint of a merger arbitrage opportunity.

What is a merger arbitrage? It is a trade that is a bet that the deal will go through as planned and the investor will be paid the final price of the shares. Microsoft announced that they will buy out all shares of ATVI for $95/share at the closing of the deal June 2023 at the latest. That means on the closing of the buyout every outstanding share will be purchased. If you have shares of ATVI now or buy them before the closing you will be bought out of them for $95. That is true if the deal goes through.

So the trade is that the deal will go through without any problems and any shares will be worth $95 at closing. At the current share price as of writing (89.92) that presents about a 16% premium. The question a trader should ask;

"Am I will to accept a return on my capital of 16% over 18 months... with the risk that the deal may not be approved by regulators or shareholders?"

Made a video extended version of this concept with examples of other mergers; good and bad.
Proper video link...

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