Microsoft-Activision deal gives merger speculators a new darling

Microsoft
This image, taken on January 18, 2022, features the Microsoft logo on a smartphone with the Activision Blizzard logo displayed. REUTERS / Dado Ruvic / Illustration

Hedge funds, which make a profit by predicting uncertain takeovers, received a treat this week when Microsoft Corp (MSFT.O) agreed to buy “Call of Duty” maker Activision Blizzard (ATVI.O) for US $ 68.7 billion in cash. . The transaction requires a no-confidence law.

Approved in other major jurisdictions, including the United States and the European Union and China. It comes at a time when President Joe Biden’s administration is keeping a close eye on major mergers, blaming some of them for pushing up inflation to boost prices.

Shares of Activision ended trading at $ 82.15 on Wednesday, well below the ડી 95 per share deal price, reflecting concerns that regulators may have shot down the combination to form the third largest gaming company, after Tencent and Sony Group Corp (6758.T). Can.

Based on Activision’s closing share price of $ 65.39 prior to the announcement of this deal, the deal is estimated to have a 57% chance of closing.

Wide spreads are ready to wager on whether investors have the opportunity to get double-digit returns. At a time when so-called merger arbitrage strategies are lagging behind broader stock market returns, it is an attractive but risky proposition.

Last year, according to hedge fund research data, merger arbitrage funds returned about 10%, beating returns posted in 2020, 2019 and 2018, but lagged behind the S&P 500 stock market gain of 27% in 2021.

For some investors, Aon’s (AON.N) denied Willis Towers Watson’s (WTY.F) $ 30 billion acquisition because the U.S. Department of Justice sued for damages.

Now they are thinking of coming back, hoping the deal will force competitors to make their own deals as well.

“The positive outlook for event-based and merger-arbitrage-oriented firms in 2022 has been accelerated by the Microsoft-Activation deal,” said Ken Heinz, president of Hedge Fund Research Inc.

Microsoft and Activision gave themselves until June 2023 to complete the transaction, giving regulators months to hedge funds to see how regulators would react if Microsoft bundled its Xbox platform with popular Activision games, such as World of Warcraft and Diablo.

Investors may soon see signs of the Biden administration’s stance as the Federal Trade Commission defense contractor Lockheed Martins (LMT.N) is expected to plan a $ 4.4 billion acquisition of Aerojet Rocketdin (AJRD.N) and the Justice Department will take the Health Council. Insurance company United Health’s (UNH.N) $ 13 billion bid for healthcare analytics and technology vendor change healthcare (CHNG.O).

Find coverage like Millennium, Taizman Consultant and Pentwater Capital spend a portion of their fusion bets, and many have briefly taken over Microsoft and Activision. Mutual funds offer merger funds managed by Westchester Capital Management and arbitrage funds operated by Water Island Capital. Similar strategy.

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