Microsoft (MSFT) acquiring Activision-Blizzard (ATVI)

MSFT and ATVI announced this morning that ATVI has agreed to be acquired by MSFT for $95 a share in cash, a total of $68.7 billion (ATVI has about $6.5 billion in net cash, so MSFT’s outlay will be just over $60 billion).

My general reactions:

–MSFT has a market cap of about $2.4 trillion, had $130 billion in cash on its balance sheet at 9/30/21, and is generating cash at about an $80 billion yearly rate. So ATVI is kind of a drop in the bucket

–MSFT says ATVI will be key in developing its metaverse platforms; ATVI had lost about a third of its market value since mid-2021 as details began to surface of a toxically anti-woman work environment at ATVI that management appeared ill-equipped to handle

–a week ago Take-Two Interactive announced it will acquire phone-game maker Zynga for $12.7 billion(about two-thirds in stock, one third in cash). The similarity between the two deals, to my mind, is that Zynga had lost half its market value over the past year

What really jumps out:

–my guess is that ATVI’s board thinks that MSFT bails it out of a very messy situation that it had little chance of fixing. If so, MSFT had the upper hand in setting terms. I find it interesting that MSFT chose to pay cash rather than issuing stock–implying it thinks is shares are still undervalued

–these deals could be an early sign that corporate America thinks that the selloff in tech-ish stocks, which , after all, has been going on for about a year, has gone far enough to establish substantial value in potential targets and that there’s no reason to bet they’ll go much lower. This doesn’t mean that we’ve reached absolute bottom–or even that the acquirers are correct in their assessment (although I believe they are). But it’s an encouraging sign.

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