Microsoft (NASDAQ: MSFT) is making its biggest acquisition ever…
In a deal that creates the world’s third-largest video gaming company.
Microsoft will pay $75.5 billion to acquire Activision Blizzard (NASDAQ: ATVI).
Activision’s portfolio of games includes Call of Duty and World of Warcraft. Both games are incredibly popular and are available on Microsoft’s Xbox console.
The acquisition will help boost Microsoft’s subscription business as well. Activision has 400 million monthly users.
Microsoft wants to expand its gaming and subscription services. Video games have been bigger than the cinema box office take for years – and video game sales are growing at a faster rate.
Additionally, the company may look at the deal as a way to bolster its initiatives in the metaverse.
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Terms of the deal call for Microsoft to pay $75.5 billion in cash for Activision. It marks Microsoft’s largest-ever acquisition.
That translates into a buyout price of $95 per share for Activision.
Activision stock had fallen 30% from its highs prior to the deal being announced. That’s because the company was accused of having a toxic workplace with widespread harassment.
That created a window of opportunity to scoop up the gaming company and its valuable franchises at a discount.
How to Trade the Microsoft Gaming Deal
Activision shares traded at $65 last week – prior to the deal being announced.
Shares of Activision jumped 26% on the news – closing the day at $82. Microsoft stock dropped 2% after the announcement.
Shares of Activision are trading at a 13% discount to the proposed acquisition price. The discount likely reflects the risk that the acquisition is subject to review by the FTC. And that antitrust concerns could scuttle the deal.
It seems likely that this deal will be completed – and antitrust concerns should be limited.
Risk-averse investors could consider buying Activision shares at $82.
The $95 buyout price represents a 15.8% premium to the current share price.
The deal is expected to close in the second half of 2022. That means investors could earn nearly a 16% risk-free return in less than 1-year.
Stocks are off to a volatile start in 2022. And earning a safe double-digit return now looks pretty attractive.
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