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Arbitrage Game: Activision Blizzard shares now offer up to 32% off. Buffett invests, should we?

Jamie Cameron
9. 11. 2022
5 min read

As time passes and the antitrust investigation unfolds, Activision Blizzard stock is down to $72, making this an attractive bet. Buffett's holding company, Berkshire Hathaway, has also taken a targeted interest in ATVI stock this year. Let's take a look at why Buffett was interested.

In January, MFST announced plans to buy Activision Blizzard for $69 billion, or $95 per share. ATVI is currently trading around $72 per share.

At the end of 2021, Berkshire Hathaway $BRK-B+0.1% owned roughly 1.8% of Activision Blizzard $ATVI+0.1% Buffett more than doubled his stake in the gaming company in 2022, with shares rising from 64.3 million to 68.4 million in August - or about 8.7% of Activision.

The current status of the deal

More than 10 months have passed since the acquisition was announced. It's too early to say anything is not going according to plan. As you might expect, regulators are beginning to scrutinize the transaction.

The CMA and the EU Commission are starting to gather evidence through a survey of market participants. The FTC is expected to be the first of the three to publish its final report by the end of November.

Interestingly, the deal has already received the green light from the Brazilian regulator ("CADE"). The agency said:

Despite all the concerns about this agreement, CADE's main objective is to promote the welfare of Brazilian players, and not to defend the interests of certain companies or their competitors.

An implausible arbitrage game

While global regulators are hotly debating the $68.7bn (£56bn) takeover of games software maker Activision Blizzard by US tech giant Microsoft, competitors in the industry are also having their say.

https://youtu.be/EnYaxS9T5Ko

Sony has, unsurprisingly, taken the "no" side, as its PlayStation console directly competes with Microsoft's X-Box. But Meta, the owner of Facebook and Instagram, said it had no problem with the deal.

Despite this rising tide of uncertainty, Microsoft Gaming CEO Phil Spencer is positive about the takeover, and at a recent Wall Street Journal Tech Live conference, Spencer said the regulators investigating the deal were "fair and honest" and he's confident the takeover will go through.

Largest gaming platform. In a recent interview with Bloomberg, Microsoft Gaming CEO Phil Spencer revealed the tech giant's motivation behind the deal : "When we thought about what we're capable of, where we need to go... the biggest gaming platform on the planet is mobile, " he said.

"One and a half billion people play on mobile phones. And I think unfortunately as Microsoft, that's not where we have a native platform. In terms of gaming, coming from consoles and PCs, we don't have a lot of creative ability to make hit mobile games. One thing about video games is that maybe if you've been around too long, you know most of their creators. So you know who the right person might be.

"But we actually started discussions, at least internally, at Activision Blizzard about the possibilities they had on mobile, and then on PC with Blizzard." Those are the two things that really sparked our interest."

Alternative scenario

Say the deal doesn't happen. Say they end up deciding against Microsoft, and Microsoft doesn't continue to fight for the deal and sees it as a bigger issue than it's worth. Activision Blizzard is not bought and remains independent. what happens then? Let's go over a few things to consider in this scenario.

ATVI' s stock price development this year

One of the problems with this current deal is that with $70 billion, there are few mega-corporations that can even consider buying Activision Blizzard $ATVI+0.1%. That's practically the entire market capitalization of Sony, for example.

In this case, there seem to be only a few likely candidates for purchase, companies like Google, Apple, Amazon, Meta, or Tencent, tech giants with at least some tangential interest in gaming, but not so invested that regulation would kill them. Microsoft has a console ecosystem and Xbox Game Pass that is part of the anti-competitive concerns. But most of these companies don't have anything like that and could be entering the gaming space by buying one of the largest remaining independent publishers.

Summary

Investors are now worried, and in October there were reports that a retailer unloaded 3.7 million shares of ATVI , which could indicate a lack of confidence that Microsoft's purchase of Activision Blizzard will go through. The shares were sold at a price of $72.25, as reported by Seeking Alpha, andinvestors appear to be concerned that the deal may be in jeopardy due to regulatory intervention, which many believe will thwart the takeover.

Overall, I continue to believe that ATVI is a bet on the sanity of regulators. The SEC filing states that the deal will close in June 2023.

32% discount. Activision shares are now down 17% since January 18 (the date of Microsoft's offer). I still believe this is a huge arbitrage opportunity that is all the more attractive the further it falls. The upside potential has reached a whopping 32%.

DISCLAIMER: All information provided here is for informational purposes only and is in no way an investment recommendation. Always do your own analysis.

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