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?"
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Made a video extended version of this concept with examples of other mergers; good and bad.
Very interesting post and we look forward to reading everyone's comments below! An interesting trade idea.
Vibranium_Capital
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Good work my dear
raoultesla
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As is usual you explain for the man on the street. Always your honour to educate us masses. 16% on 18 months for current mkt is Gold, is it not? Activision is a decent frame and chassis, MSFT can install a new powerplant, improved AC, sunroof... Can't fall under the top 3 in colors goggles to control the masses sentiment. It will be approved, the Senate still despises Zucky, they would not want to assist his Meh'-duhverse monopoly garnering stronger foundation. THX for longevity outlook.
Basic question: If I have ATVI shares now, hold it until the merger (and the assuming the merger goes through), then I will get 95/share but lose the shares? If that's true, then it is unlikely ATVI will make it above 95, is it? I was expecting the same as what happened in 2018 - a 50% retracement from the ATH and then go long which would have made my entry at 52-ish.
I am surprised the market is pricing this deal in like it has very little chance. With that being said, what I might do, is set an alert for ATVI at a number that catches my attention. In my view, considering the size of Playstation, even now Steam or Oculus, Roblox as well, I don't understand the anti trust argument at all. It seems to me that there are more than enough game developers and companies out there to compete. I'll do a little more research though first - I might be missing something.
norok
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@scheplick, I actually think the market is pricing it in as a standard merger. I was looking at mergers going back over a decade and the typical return premium is 1% per month. If this takes the full 18 months then at 82.30 close today that is 0.74%/month.
I also think the regulatory risk is low as this would make them only the 3rd largest game developer by revenue. I also think that the bid is unlikely to increase since it is already a record offering and as interest rates are expected to rise there will be less "cheap" cash available to fund a higher offer.
JayCGianfreda
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@norok, Additionally to external regulators ; Microsoft must also do a due diligence and deeply audit the financials of Activision. If a material fraud or misstatement is observed ; this can have an impact on the final deal