In January 2022, Microsoft (MSFT) announced an agreement to acquire Activision Blizzard (ATVI) for $95 per share, in an all-cash $68.7 billion transaction. However, the market placed some uncertainty about this event actually happening, which meant the ATVI share price stayed in the $70 to $80 range for most of 2022.
This created a potential event-driven opportunity. If the deal did work out, you would be cashed out at $95 per share, a ~20% premium. In my previous post Warren Buffett’s Activision Merger Arbitrage Deal, I compared his bet to a credit card bonus for us mere mortals. It was small fries to him, but still a fun and profitable thing to do.
As another educational “$10,000 experiment”, I decided to buy roughly $10,000 of ATVI (131 shares @ $76.65) on May 19, 2022.
All I had left to do was wait and see how things would unfold. This was where the education came in. It can be hard to keep holding during a constant stream of media articles about how various powerful governments were trying to block to deal. New blocks and lawsuits usually meant the ATVI stock price dropped a lot. As issues resolved, the stock price would jump back again.
Here is a Morningstar chart that tracked the growth of $10,000 invested in either ATVI (red) or the Vanguard S&P 500 index fund (blue) from May 2022 to October 2023.
The transaction was initially marked to close around June 2023. After lengthy negotiations with US, EU, and UK regulators, the acquisition finally closed on October 18th, 2023 after Microsoft made various concessions and promises to maintain competitiveness in the gaming industry. I received my cash payment on 10/13/23.
Microsoft was a stable buyer and patient negotiator, and Warren Buffett’s instincts that this would eventually work out were correct. In the end, I received an ATVI dividend of $129.69 on 8/17/23 and my final payout of $12,445 ($95 a share x 131 shares):
ATVI never actually traded at the full $95 on the exchanges, so my final numbers were a bit better than the chart above. My net profit on my $10,040 initial investment was $2,534, as compared to the $1,357 that I could have earned from owning the S&P 500 over the same time period. That’s an extra difference of $1,177. Using the XIRR function, I calculated a 17.4% annualized rate of return.
(Side note: Warren Buffett actually sold most of his ATVI stock before this final closing, between Q3 2022 and Q2 2023. I actually don’t know how much he gained from this purchase, it appears he sold a chunk when ATVI was about $85 a share in Q2 2023.)
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Brilliant move. Congrats on a trade well executed. Please post arbitrage deals before they happen.
Thanks, although I did post about this back in May 2022 (see link). This one wasn’t a sure thing, so it was more of an investing experiment with positive expected value than a “deal”, although I still get a kick out of how Warren Buffett has a hard time leaving his old habits behind.
https://www.mymoneyblog.com/microsoft-activision-blizzard-merger-arbitrage-experiment.html
Hi Johnathon,
I’ve been reading your blog for quite a while now and just wanted to reach out to say thank you for all the amazing info you provide! Your tips and advice are always full of important details, which are easy to understand, and all of them offer REAL opportunities for making money. There’s no need to sift through to find the actual deals because you’ve already done that for us!
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With gratitude,
Wendy Andary
Half Moon Bay, CA
Appreciate your kind words, Wendy! Thank you for reading 😀
Jonathan, I bought $2000 worth of ATVI in June 2022 at $77.00 and sold all the shares in May 2023 at about $76.00 a share. As you say, with all the negative news I decided to sell, taking a small loss. It was still an interesting experiment. I just ran out of patience. And yes, I enjoy your articles.
I thought about bailing out as well at one time, mostly because I wanted to use the money elsewhere. This is why “skin in the game” is very different than paper trading. I believe another famous quote says something like “the money is made in the waiting”.
Jonathan – what’s your take on HES arbitrage?
I haven’t looked into it deeply, as the price difference was quite small initially. I see now that HES has dropped significantly, but I haven’t followed the news closely. Might be worth another look. What do you think?
Any opportunity with cedar fair and six flags merging?