Microsoft (Nasdaq: MSFT) is planning to shut its agreed-upon $68.7 billion acquisition of Activision Blizzard (Nasdaq: ATVI) on June 30 of this 12 months.
This deal was introduced approach again in January 2022 and has already been accepted by Activision shareholders.
The acquisition value shall be $95 per Activision Blizzard share.
Microsoft – being the juggernaut that it’s – will after all be paying money. (It’s, in spite of everything, solely $68.7 billion!)
Regardless of the time limit rapidly approaching, you possibly can nonetheless purchase shares of Activision for $78 in the present day. That may be a large low cost to the $95 acquisition value.
If this deal closes in simply over three months, anybody who buys Activision shares in the present day could possibly be cashing out with a acquire of twenty-two%.
On an annualized foundation, that’s a 98% return price! That may be a fairly candy return for proudly owning shares for only some months…
So what provides? Why aren’t Activision Blizzard shares buying and selling nearer to Microsoft’s acquisition value?
The reply is that the market isn’t sure that the deal goes to shut. And neither am I…
In December, the Federal Commerce Fee (FTC) introduced that it was searching for to dam the deal on antitrust grounds.
The FTC believes that if Microsoft will get entry to the Activision Blizzard gaming library, it might be too highly effective to permit for enough competitors within the gaming market.
Microsoft is, after all, preventing the FTC on this.
The deal can also be contingent on approval from a number of entities in Europe.
I’ve learn fairly just a few analyst takes on it, and I’d say the percentages are higher than 50-50 that the deal will shut.
If it does shut, shopping for shares of Activision Blizzard in the present day is clearly going to offer an exquisite return.
However what if you happen to have been to purchase shares of Activision Blizzard in the present day and the deal doesn’t shut?
Nicely, I’d say that you simply’d nonetheless have made a fairly darn good long-term funding in an awesome firm at a pleasant valuation.
Activision Blizzard is the biggest premier international online game creator out there.
Plus, the corporate goes to reap a pleasant little $3 billion money breakup payment from Microsoft if the deal fails to shut.
That $3 billion can be added to the $12 billion in money and investments that Activision Blizzard already has on its stability sheet.
With $15 billion, that will equate to virtually $15 per share of extremely liquid securities on Activision’s stability sheet.
If somebody purchased shares in the present day at $78, they might actually be paying solely $63 for the Activision enterprise if the deal fell by. I calculate that by taking the $78 share value and deducting the $15 of money and investments.
For $63, an investor is getting an organization that analysts imagine goes to earn $3.85 per share this 12 months.
That may be a valuation of simply 16 instances earnings, which could be very good for a dominant, rising enterprise that generates large free money move yearly.
It’s also a pleasant low cost to the 20 to 30 instances earnings that the corporate has traditionally traded for.
What this basically boils right down to is that we’re a coin flip.
If the coin comes up heads and the deal will get accepted, anybody shopping for shares in the present day goes to financial institution a fast 22% acquire in simply over three months.
That’s an enormous win.
If the coin comes up tails and the deal will get squashed, anybody shopping for shares in the present day will get to personal an awesome firm at a really, very cheap valuation.
Sure, the inventory will doubtless slide if the deal will get known as off, however over the long run, I feel this inventory is a winner at this value within the “no deal” state of affairs.
And for what it’s price, Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) has greater than $4 billion driving on Activision Blizzard and owns virtually 7% of the corporate.
The Worth Meter ranks Activision Blizzard as “Barely Undervalued,” with two methods to win.
One is quick; one is gradual. Each are profitable.