Microsoft-Activision spread hits lowest since merger announced

Published Sat, Mar 25, 2023 · 10:47 AM

THE gap between Activision Blizzard’s stock price and Microsoft’s takeover offer is at its narrowest level since the US$69 billion merger was announced in January 2022, as an update from UK regulators lifts expectations that the deal could go through.

Activision rallied 5.9 per cent on Friday (Mar 24) to US$84.39, the highest since Aug 12, 2021. The surge came after the UK Competition and Markets Authority narrowed the scope of their merger probe, putting the stock around 11 per cent below Microsoft’s US$95-per-share offer. The gap was 23 per cent when British regulators voiced opposition to the tie up back in February.

The market is currently pricing in roughly 50 per cent odds of the deal being completed, assuming a US$75 standalone value in Activision if the deal does not go through, according to Cowen’s Aaron Glick. This compares to about 30 per cent odds a month ago, but at the time, market was pricing a US$65 standalone value, he said.

“This seems to be a major pivot” from the UK’s CMA, which is now saying Microsoft has no incentive to withhold Call of Duty from competitors, said Frederic Boucher, a risk arbitrage analyst at Susquehanna International Group.

This approval is the main regulatory roadblock, he added. However, the pivot “does not mean that the approval is a done deal,” Boucher noted, since it still has an issue related to cloud gaming.

Meanwhile, puts expiring in January led Activision’s options trading on Friday, a sign that traders may be rolling up hedges to a higher level to protect against a drop in shares. BLOOMBERG