Shulou(Shulou.com)11/24 Report--

Microsoft's acquisition of Activision Blizzard has reached an impasse, but some traders are betting that the deal will eventually be done. If their predictions are correct, given that the video game company's current share price is still nearly 20% lower than its bid, buying the stock will pay off.

Us regulators have stepped up their focus on large companies, especially technology companies, lengthening the time between announcement and final approval of mergers and acquisitions, increasing the risk of a deal breaking down.

"the sheer size of the deal, coupled with increased antitrust scrutiny of large technology companies, eventually led to a very large spread," said Julian Klimochko, chief investment officer of investment firm Accelerate Financial Technologies Inc.

Microsoft announced its acquisition of Activision Blizzard in January and said it expected to close the deal by June 30, 2023. Separately, Broadcom Inc. Said it plans to complete the $61 billion acquisition of VMware Inc. Announced in May this year by October 2023.

Average annualised spreads in the US, a measure of the risk of deal failure, have risen to more than 15 per cent from about 10 per cent at the start of the year, according to Susquehanna International Group. At the same time, investors are increasingly worried about failed deals or repricing, as well as the rising cost of holding risky positions.

Of course, one of the biggest arbitrage spreads in tech mergers and acquisitions has nothing to do with regulatory hurdles.

Elon Musk is trying to pull out of a $44 billion acquisition of Twitter, and Twitter sued Musk to force him to close the deal. Twitter shares are currently trading at $41, compared with a trading price of $54.20. If the deal goes according to plan, holding Twitter shares will make a profit of 32%.

The Federal Trade Commission (FTC), led by chairman Lina Khan, has filed a lawsuit to block two major acquisitions. She advocates closer scrutiny of mergers and acquisitions by large technology companies, arguing that technology companies can use their dominance in one area of business to gain influence in other markets.

The downturn in technology stocks has also contributed to trading spreads. Krimochko said the Nasdaq 100 index has fallen 19% so far this year, forcing investors to take into account the risk of trading failure and falling Activision Blizzard shares.

Given that Activision Blizzard's acquisition is expected to be completed for a long time, the stock will have to endure several more quarters of volatility related to the company's specific news flows and overall market movements.

However, Cabot Henderson, market strategist at Jonestrading, the financial services company, said: "there is a relatively strong consensus that this deal should be approved". Wall Street seems to feel the same way, with 26 of the 32 analysts setting a 12-month target price of $95 or more for the stock.

Investor Warren Buffett bought about 9.5% of Activision Blizzard in an effort to arbitrage mergers and acquisitions. The 91-year-old billionaire has about 70 years of experience in arbitrage, including arbitrage for technology companies: he bought shares in Red Hat Inc., which was acquired by IBM in 2019.

Last week, Clay Griffin, an analyst at investment firm MoffettNathanson LLC, upgraded Activision Blizzard's stock rating to outperform the market. "while we don't think Microsoft will be able to complete the Activision Blizzard deal soon, we do see a good reason why it should eventually do so," he wrote. "

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