In This Article:
First published on Simply Wall St News
Key takeaways:
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Investors are slowly losing confidence in the gains from the ATVI merger arbitrage as risks for a delay or blockage from the FTC increase.
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Warren Buffets ATVI merger arbitrage stake represents only 0.8% of Berkshire's market cap.
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Berkshire beat bottom line expectations, as the company is showing resilience to the current unfavorable business climate.
Warren Buffett announced that Berkshire Hathaway (NYSE:BRK.A) has built up a 9.5% stake in Activision Blizzard Inc. (NASDAQ:ATVI) stock, which is under an acquisition bid from Microsoft (NASDAQ:MSFT) for US$95 per share. Investors are monitoring the situation for an opportunity to get in on the arbitrage, and we will discuss the current status and review quarterly results.
Acquisition Progress
Currently, the price of ATVI is trading at US$75.6, about 20% below the acquisition bid, and 8.1% lower than peak investor enthusiasm when the deal was announced on the 18th of January.
On the 28th of April, (98% of) ATVI shareholders approved the US$69b Microsoft acquisition.
Berkshire has revealed that it has a 9.5% stake in Activision, which would be bought off from Microsoft if the transaction is allowed to go forward from the FTC (federal trade commission). Investors, may have a harder time estimating the likelihood of a success, since democratic senators demanded a tougher investigation by the FTC regarding the treatment of workers and labor issues.
The FTC has expressed a tougher stance on acquisitions and, under the leadership of Lina Khan has blocked NVIDIA's acquisition of Arm Ltd., Lockheed Martin's bid for Aerojet Rocketdyne, as well as initiated a restructuring of the case against Meta - which seeks to split away Instagram and WhatsApp.
If it gets timely approval, Microsoft's acquisition is still expected to happen by the 30 June 2023.
One of the more pressing concerns for the acquisition is that it may be significantly delayed and the net benefit of the offered US$95 per share may be diluted by time. However, it seems that the merger will ultimately happen, even if there is a lawsuit by the FTC, as Bloomberg conveys that the law is tilted on the side of Microsoft. However, negotiations can be used to extract further costs to the company regarding labor issues.
As time passes by, it seems that investors are less optimistic about the merger, and that is reflected in the slow 8% decline of Blizzard's stock, after the initial announcement.
Berkshire's current stake in ATVI is worth US$5.6b, as measured by the latest close price. This is in-effect what the company has on the line while it is waiting for the decision from the FTC. From a Berkshire investor's point of view, this is not worth quite so much, as it represents a 0.8% portion of Berkshire's US$713.4b market cap.