Microsoft to acquire Activision, Guaranteed return?

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Fordguy88
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Microsoft to acquire Activision, Guaranteed return?

Post by Fordguy88 »

One of the headline's this morning is Microsoft will purchase Activision for $95 per share in an all cash deal, expected to close sometime in FY 2023.

Why is the stock price not immediately at $95 in this case? It's hovering around $85 currently.

I know the markets are smarter than me, but I'll ask the stupid question now.

Why not buy a bunch of shares at $85 if you're guaranteed to eventually get $95 per share in the next year or so for a guaranteed return?

I'm sure it's not that simple, hoping someone on here sees what I'm missing.

Thanks,
Fordguy88
yog
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by yog »

The deal is scheduled to close in 2023.

The deal is subject to anti-trust scrutiny.

The market is a discounting machine.
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Forester
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by Forester »

Activision's IPs are in decline and Microsoft is throwing money at acquiring established franchises. It's a similar situation to the Netflix/DisneyPlus streaming world, where the platform owners are eating losses today in the hope of scooping up subscribers who they can lock in for the long haul.

Meanwhile you have a company like Nintendo practically printing money, and the bulk of their sales are antiquated physical media, not subscription services.
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sureshoe
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by sureshoe »

Ah Activision. The last stock from my Motley Fool days in my portfolio. I had largely forgotten about it. It too shall go away, how sad.
sc9182
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by sc9182 »

Understand you can’t talk about pending law(s) your which are not passed yet.

Can you discuss about a deal which is not ratified yet ? :-)
z3r0c00l
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by z3r0c00l »

Why not just buy Microsoft and you will eventually own Activision? Cut out the middle man.
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randomguy
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by randomguy »

yog wrote: Tue Jan 18, 2022 8:46 am The deal is scheduled to close in 2023.

The deal is subject to anti-trust scrutiny.

The market is a discounting machine.
Yeah the market is saying there is some chance the deal doesn't go through. The stock is up like 30% based on the deal going through. You would need to read (not sure if they are published yet) the specifics of the deal to know what type of outs both parties have (i.e. what if activision loses some of those harassment lawsuits).
randomguy
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by randomguy »

z3r0c00l wrote: Tue Jan 18, 2022 10:07 am Why not just buy Microsoft and you will eventually own Activision? Cut out the middle man.
Because I don't get a 15% return by buying microsoft. I might get more or less.
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8foot7
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by 8foot7 »

If you look at the history of Microsoft's acquisitions you will learn how problematic assuming that there is a guaranteed return within this transaction would be.
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by Peculiar_Investor »

Fordguy88 wrote: Tue Jan 18, 2022 8:45 am Why not buy a bunch of shares at $85 if you're guaranteed to eventually get $95 per share in the next year or so for a guaranteed return?

I'm sure it's not that simple, hoping someone on here sees what I'm missing.
I would suggest reading Merger Arbitrage Definition
Investopedia wrote:Merger arbitrage, often considered a hedge fund strategy, involves simultaneously purchasing and selling the respective stock of two merging companies to create "riskless" profits. Because there is the uncertainty of the deal being completed, the stock price of the target company typically sells at a price below the acquisition price. A merger arbitrageur will review the probability of a merger not closing on time or at all and will then purchase the stock before the acquisition, expecting to make a profit when the merger or acquisition completes.
Quoting from another forum because the poster expressed it well
Within a few moments of the market opening the arbitrageurs come in. Those are the smart guys that understand these mergers every which way from Sunday. I don't compete with these guys since I don't like loosing.

So upon opening, the price of the acquired company is going to move quickly and level out. The price will either be very close to the acquisition price, above the acquisition price or below the acquisition price. Close to the price is really the Arbs determining that the deal with go through and represents the interest they earn on waiting for the deal. In today's interest rate environment that will not be much. If the price is above the acquisition price the Arbs are expecting another offer and adjusting everything for the possibility of that. If the price is below the acquisition price the Arbs either expect the management of the acquired company to fight off the offer and possibly win, driving their stock price back down to where it was before the offer...or...they expect regulatory hurdles to come in and possibly change the dynamics of the offer or prevent it from happening completely, driving the price back down to where it was before the offer.
Generally this is an area where you let the professionals handle it.
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AnEngineer
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by AnEngineer »

Fordguy88 wrote: Tue Jan 18, 2022 8:45 am Why is the stock price not immediately at $95 in this case? It's hovering around $85 currently.
If the deal were sure and the sale were tomorrow, it'd be close to $95 today. The uncertainty has been touched on, but also pay attention to time. Why give someone $95 dollars today to just get it back next year? Most investors hope to do better than that.
GP813
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by GP813 »

Usually other deals trade right at their announced price but with big tech everything is touch and go because of the anti-trust environment.
Swiss Bee
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ATVI - bought by MSFT

Post by Swiss Bee »

[Merged into existing discussion -- moderator oldcomputerguy]

Hello fellow investors,

A good day for ATVI shareholders. :moneybag Do you have experience how this acquisition will play out? Will ATVI shareholders get USD 95.- cash per share when the acquisition goes through, and the shares disappear?

Cheerio!
an_asker
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Re: ATVI - bought by MSFT

Post by an_asker »

I would assume that that's exactly what would happen ... if the deal goes through!
Swiss Bee
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Re: ATVI - bought by MSFT

Post by Swiss Bee »

Now, thinking about this a bit more, I am not sure if this is good news. In the short run, shares soared, but I would have liked to keep them for the long run… 🤨
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simplesimon
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Re: ATVI - bought by MSFT

Post by simplesimon »

Looks like the price is returning to its levels from earlier in 2021. I don't have any shares but I'd be happy to be bailed out by MSFT.
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by KyleAAA »

Regulatory scrutiny in addition to the regular risk that the deal might fall through. This would make Microsoft the world's 3rd largest video game publisher in addition to one of the main hardware platforms. Governments might balk or impose burdensome restrictions that make the deal unattractive. Note that the 2023 date refers to Microsoft's 2023 fiscal year, which begins in July of this year. Not a guaranteed return. Merger arbitrage is a highly specialized niche best left to the experts.
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by Northern Flicker »

Fordguy88 wrote: Tue Jan 18, 2022 8:45 am One of the headline's this morning is Microsoft will purchase Activision for $95 per share in an all cash deal, expected to close sometime in FY 2023.

Why is the stock price not immediately at $95 in this case? It's hovering around $85 currently.

I know the markets are smarter than me, but I'll ask the stupid question now.

Why not buy a bunch of shares at $85 if you're guaranteed to eventually get $95 per share in the next year or so for a guaranteed return?

I'm sure it's not that simple, hoping someone on here sees what I'm missing.

Thanks,
Fordguy88
There can be a variety of reasons, but one thing you can be sure of is that it is not a guaranteed return. If it were guaranted to be at $95 in a year, it would be discounted by the 1-yr t-bill rate to get the price today. The market is pricing in additional risk.
Newaygo
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by Newaygo »

As others have commented, the reason for the discount is that the deal could fall apart due to either the Federal regulators stopping the deal or MSFT and Activision having a falling out. On the other hand, another company could jump in and better MSFT's offer. Years ago I bought Monsanto after Bayer announced its intention to buy it. Due to the uncertainty, I got a significant discount. While I waited for the deal to either succeed or fail, I collected dividends from Monsanto. The deal eventually went through. Fortunately, it was a cash deal and not Bayer stock. Bayer got hit with RoundUp lawsuits soon after. If the deal had failed, I would have gotten hit with a loss on Monsanto. So there is a risk.
DarkMatter731
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by DarkMatter731 »

Forester wrote: Tue Jan 18, 2022 8:52 am Activision's IPs are in decline and Microsoft is throwing money at acquiring established franchises. It's a similar situation to the Netflix/DisneyPlus streaming world, where the platform owners are eating losses today in the hope of scooping up subscribers who they can lock in for the long haul.

Meanwhile you have a company like Nintendo practically printing money, and the bulk of their sales are antiquated physical media, not subscription services.
I did not realize Nintendo was that profitable.

$4 billion net income on a gross revenue of $15 billion.

That's fantastic.

But Nintendo's market cap is $60 billion - huh, they also seem to be 'fairly' valued.

I wonder what I'm not seeing here.
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by ras4250 »

A very real world example of this exact scenario gone (almost) wrong was the Louis Vuitton acquisition of Tiffany.

LVMH announced a deal to buy Tiffany stock at $135 per share. Before the rumors leaked Tiffany was at $91. Deal announced Nov 2019. Then covid hit. After stock was steady around $135 deal price, stock dropped to $112-115 range. Bounced back up the $125-$130 range after LVMH rumored to buy shares in open market due to the Covid decline.

Tiffany sales struggled but they kept paying a dividend. LVMH didn’t like that. June of 2020 news leaks from LVMH that the deal is off and stock drops by 9% after it was steady around deal price of $135.

Tiffany sues in Delaware and LVMH countersues. Before trial they agree on a lower price of $131.50. Anyone who tried to get in at $131.50-$135 on a “guaranteed” bet lost money. And anyone who bought on the way up from $91 to $135 or on the initial covid drop down to $112 area, on the “guarantee” could have lost if it went the other way and LVMH won in court and was able to back out of the deal. (Lost in the sense only if Tiffany stock dropped and never recovered, obviously no longer a guaranteed quick trade and now turned into either a loss or a long term holding position of TIF stock).
NoRegret
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by NoRegret »

I own ATVI. It's a cash deal @$95 and I read $3B break-up fee. There are some risks the deal falling through but in my judgement the risk is relatively small.
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fetch5482
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by fetch5482 »

IIRC this is similar to what happened when MSFT gobbled LNKD few years ago. LNKD stocks traded ~10-12% below the cash offer price for a while, and as things got close to completion the gap narrowed to about 1%. Then one fine day LNKD stock was delisted and investors saw it convert to cash in their brokerage accounts. Several of us got a large tax bill that year due to forced liquidation of LNKD.
Last edited by fetch5482 on Wed Jan 19, 2022 12:32 am, edited 1 time in total.
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Hyperchicken
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by Hyperchicken »

Guaranteed return was if you bought yesterday 1/17. ATVI went up 30+% today. Today's valuation is market's best guess at the stock's future. If it were guaranteed to go to $95, it would have been at $95 today, discounted at riskless rate.
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Re: Microsoft to acquire Activision, Guaranteed return?

Post by InvestInPasta »

up! :beer

Buffett says Berkshire Hathaway has 9.5% Activision stake

Last price $78, it's a potential easy gross gain of more than 20% to $95. :greedy

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