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Merger Arbitrage Mondays – Activision Blizzard Trades At A Big Discount To Microsoft’s Acquisition Price

  • January 24, 2022

Merger activity remained steady last week with two new deals announced, three deals completed and one deal that terminated.

In our previous Merger Arbitrage Mondays post, we wrote that the largest gaming company acquisition in history was announced when Take-Two (TTWO) announced that it was acquiring Zynga (ZNGA) for $12.7 billion. A week later, Microsoft (MSFT) surprised the gaming industry when it announced that it is acquiring Activision Blizzard (ATVI) for $68.7 billion. Activision shocked the entertainment world in 2011 when Call of Duty: Modern Warfare 3 generated $400 million in revenue within 24 hours of release. This was unheard and far exceeded what most blockbuster movies made several months after release. The release of Call of Duty: Ghosts generated $1 billion in retail sales on its first day in 2013. The first time I wrote about Activision Blizzard was in September 2008 as a way to ride out the recession during the Great Financial Crisis. If this deal goes through, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent, the publisher of League of Legends and Sony, maker of the PlayStation. Through this acquisition Microsoft will end up adding franchises like Overwatch, Call of Duty, World of Warcraft, and Candy Crush to its game library.

(Source: Activision Investor Presentation)

The deal is priced at $95 per share in cash, representing a premium of over 45% to Activision’s closing price before the deal was announced. Activision’s stock had taken a big hit in recent months after allegations of workplace harassment resulted in employee walkouts and several resignations. This deal with Microsoft is as much about fixing the culture at the company as it is about allowing Microsoft to strengthen its gaming presence and enter the metaverse with strong franchises. The deal is subject to clearance from antitrust regulators in the US, Europe and China. The termination fee of $3 billion is likely to compel all parties to get this deal completed.

During a conference call regarding the deal, Microsoft CEO Satya Nadella said,

Gaming is the largest and fastest-growing category in entertainment. The last two years, in particular, have shown how critical games are to helping people maintain a sense of community and belonging even when they’re apart.

The deal is currently trading at an unusually large 16.78% spread or 14.18% annualized assuming it closes by March 31, 2023. The large spread represents the market’s skepticism about regulators allowing this deal to close or delaying the closing. There could be some interesting ways to play this situation by using long dated options and I plan to write about it in our next premium newsletter.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

There was one new deal announced in the Deals in the Works section last week.

SPAC Arbitrage

SPAC activity remained steady with seven new SPAC IPOs filed. There were three new SPAC combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. ProKidney LP, a clinical-stage cellular therapeutics company focused on chronic kidney disease, has entered into a definitive agreement to become a publicly traded company via a business combination with Social Capital Suvretta Holdings Corp. III (DNAC).
  2. Eleusis, a clinical-stage life science company that aims to unlock the therapeutic potential of psychedelics, and Silver Spike Acquisition Corp. II (SPKBsigned a definitive business combination agreement expected to make Eleusis a public company.
  3. Allwyn Entertainment, the new group-wide brand for SAZKA Entertainment AG, leading multinational lottery operator, announced another significant step in its evolution to a global lottery-led entertainment platform: Allwyn’s intention to become a publicly-listed company on the New York Stock Exchange (NYSE) in partnership with NYSE-listed Cohn Robbins Holdings (CRHC).

Weekly Spread Changes:

The table below shows weekly spread changes between January 15 and January 21, 2022.

SymbolQuoteAcquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
NES1.73Select Energy Services, Inc. (WTTR)6.47-4.60%-23.58%18.98%All Stock
AZPN143.2Emerson Electric Co. (EMR)93.211.73%2.62%9.11%Special Conditions
PTRS10.06OceanFirst Financial Corp. (OCFC)22.453.18%-1.42%4.60%Special Conditions
CHNG20UnitedHealth Group Incorporated (UNH)461.1728.75%25.12%3.63%All Cash
ARNA90.48Pfizer Inc. (PFE)52.7910.52%7.93%2.59%All Cash
ABTX43.83CBTX, Inc. (CBTX)30.41-1.59%-0.05%-1.54%All Stock
NFH11.59Unicorn II Holdings Limited (N/A)3.54%7.91%-4.37%All Cash
JOBS51.8Garnet Faith Limited (N/A)52.61%59.44%-6.83%All Cash
XLNX187.79Advanced Micro Devices, Inc. (AMD)118.819.04%18.87%-9.83%All Stock
CSPR6.3Durational Capital Management LP (N/A)9.52%27.78%-18.26%All Cash

Deal Statistics:

Total Number of Deals Closed in 202210
Total Number of Deals Not Completed in 20221
Total Number of Pending Deals
Cash Deals42
Stock Deals23
Stock & Cash Deals7
Special Conditions8
Total Number of Pending Deals80
Total Deal Size$545.05 billion

New Deals:

  1. The acquisition of Activision Blizzard (ATVI) by Microsoft Corporation (MSFT) for $68.7 billion or $95.00 per share in cash.
  2. The acquisition of Zogenix (ZGNX) by UCB for $1.28 billion or $26.00 per share in cash, plus a contingent value right (CVR) for a potential cash payment of $2.00 upon EU approval by December 31, 2023, of FINTEPLA® as an orphan medicine for treatment of Lennox-Gastaut syndrome (LGS).

Deal Updates:

  1. On January 19, 2022, Casper Sleep (CSPR) announced that its stockholders voted to adopt the Agreement and Plan of Merger, whereby Casper will be acquired by certain subsidiaries of Durational Consumer.
  2. On January 19, 2022, Golden Star Resources (GSS) announced that it has been advised by Chifeng Jilong Gold Mining that Chifeng and its subsidiary Chijin International, and Chijin’s assignee Kefei Investment Limited have received approval from the National Development and Reform Commission (“NDRC”), with respect to the previously announced plan of arrangement.
  3. On January 20, 2022, First Interstate BancSystem (FIBK) and Great Western Bancorp (GWB) announced that they have received all required regulatory clearances as well as approvals of the shareholders of FIBK and stockholders of GWB related to the proposed merger of FIBK and GWB.
  4. On January 20, 2022, R.R. Donnelley & Sons Company (RRDannounced the receipt of an unsolicited non-binding “Alternative Acquisition Proposal” from a strategic party to acquire all of the outstanding shares of RRD’s common stock for $11.50 per share in cash.
  5. On January 20, 2022, Mimecast Limited (MIME) and Permira announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
  6. On January 20, 2022, Pretium Resources (PVG) announced that the Company’s securityholders approved the previously announced acquisition of Pretivm by Newcrest Mining Limited (NCMGY).
  7. On January 21, 2022, Lumentum Holdings (LITE) and NeoPhotonics Corporation (NPTNannounced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) with respect to Lumentum’s pending transaction with NeoPhotonics.

Closed Deals:

  1. The acquisition of Corvus Gold (KOR) by AngloGold Ashanti Limited (AU) on January 18, 2022. It took 127 days for this deal to be completed.
  2. The acquisition of Dawson Geophysical Company (DWSN) by Wilks Brothers on January 18, 2022. It took 85 days for this deal to be completed.
  3. The acquisition of Marlin Business Services (MRLN) by HPS Investment Partners on January 20, 2022. It took 276 days for this deal to be completed.

Terminated Deals:

  1. On January 20, 2022, Blue Ridge Bankshares (BRBS) and FVCBankcorp (FVCB) announced a mutual agreement to terminate their merger agreement. The parties agreed that each company will bear its own costs and expenses in connection with the terminated transaction, and that neither party will pay any termination fee as a result of the mutual decision to terminate the merger agreement.

Top 10 deals with largest spreads:

SymbolAnnounced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
ProfitAnnualized
Profit
JOBS06/21/2021Garnet Faith Limited (N/A)$79.05$51.803/31/202252.61%286.59%
TMX12/14/2021Rentokil Initial plc (RTOKY)$55.00$42.4812/31/202229.47%31.45%
MNTV10/28/2021Zendesk (ZEN)$21.32$16.5506/30/202228.80%66.53%
CHNG01/06/2021UnitedHealth Group Incorporated (UNH)$25.75$2006/30/202228.75%66.42%
AJRD12/20/2020Lockheed Martin Corporation (LMT)$51.00$42.9303/31/202218.80%102.41%
ATVI01/18/2022Microsoft Corporation (MSFT)$95.00$81.3503/31/202316.78%14.18%
BRG12/20/2021Blackstone Real Estate (N/A)$29.85$26.5206/30/202212.56%29.01%
AZPN10/11/2021Emerson Electric Co. (EMR)$160.00$143.206/30/202211.73%27.10%
PNM10/21/2020Avangrid, Inc. (AGR)$50.30$45.3206/30/202210.99%25.38%
ARNA12/13/2021Pfizer Inc. (PFE)$100.00$90.4806/30/202210.52%24.31%

List of all pending deals:

The list of all pending deals is only available to InsideArbitrage Premium and Plus members.

TargetAnnounced
Date
AcquirerDeal
Type
Closing
Value
Deal
Price
Last
Price
Target VolumeEstimated
Closing Date
ReturnAnnualized
Return
+JOBS6/21/21Garnet Faith Limited (N/A)All Cash$3.63 B$79.05$51.80162,3163/31/2252.61%290.93%
+TMX12/14/21Rentokil Initial plc (RTOKY)Special Conditions$6.7 B$55.00$42.48833,43612/31/2229.47%31.55%
+MNTV10/28/21Zendesk (ZEN)All Stock$4.21 B$21.32$16.55698,9666/30/2228.80%66.96%
+CHNG1/06/21UnitedHealth Group Incorporated (UNH)All Cash$13.28 B$25.75$20.005,684,9796/30/2228.75%66.84%
+AJRD12/20/20Lockheed Martin Corporation (LMT)All Cash$3.79 B$51.00$42.93802,3933/31/2218.80%103.96%
+ATVI1/18/22Microsoft Corporation (MSFT)All Cash$68.7 B$95.00$81.3517,143,2753/31/2316.78%14.21%
+BRG12/20/21Blackstone Real Estate (N/A)Special Conditions$3.6 B$29.85$26.52414,9806/30/2212.56%29.19%
+AZPN10/11/21Emerson Electric Co. (EMR)Special Conditions$12.34 B$160.00$143.20605,4806/30/2211.73%27.27%
+PNM10/21/20Avangrid, Inc. (AGR)All Cash$8.05 B$50.30$45.321,309,6076/30/2210.99%25.55%
+ARNA12/13/21Pfizer Inc. (PFE)All Cash$4.69 B$100.00$90.481,762,0326/30/2210.52%24.46%
+ZNGA1/10/22Take-Two Interactive Software, Inc. (TTWO)Special Conditions$12.7 B$9.86$8.9941,437,7036/30/229.68%22.50%
+CSPR11/15/21Durational Capital Management LP (N/A)All Cash$318.49 M$6.90$6.304,419,5481/31/229.52%496.60%
+XLNX10/27/20Advanced Micro Devices, Inc. (AMD)All Stock$33.43 B$204.76$187.796,162,7953/31/229.04%49.97%
+COHR3/25/21II-VI Incorporated (IIVI)Cash Plus Stock$6.84 B$277.43$255.16272,2331/31/228.73%455.10%
+SJR3/15/21Rogers Communications Inc. (RCI)Special Conditions$26 B$32.40$29.81280,8006/30/228.69%20.20%
+SAFM8/09/21Cargill and Continental Grain Company (N/A)All Cash$4.49 B$203.00$187.08170,4571/31/228.51%443.72%
+ZGNX1/19/22UCB (N/A)Special Conditions$1.28 B$28.00$25.989,112,4976/30/227.78%18.08%
+STXB11/19/21Simmons First National Corporation (SFNC)All Stock$581 M$29.71$28.3383,2716/30/224.88%11.35%
+VNE10/04/21Qualcomm Incorporated (QCOM)All Cash$3.87 B$37.00$35.29866,0016/30/224.85%11.27%
+NPTN11/04/21Lumentum Holdings Inc. (LITE)All Cash$745.24 M$16.00$15.281,241,00412/31/224.71%5.04%
+XENT8/06/21Medtronic plc (MDT)All Cash$1.1 billion$28.25$27.13301,9083/31/224.13%22.83%
+CCMP12/15/21Entegris, Inc. (ENTG)Cash Plus Stock$6.5 B$187.18$180459,78712/31/223.99%4.27%
+CERN12/20/21Oracle Corporation (ORCL)All Cash$28.4 B$95.00$91.74,604,29612/31/223.60%3.85%
+NFH8/04/21Unicorn II Holdings Limited (N/A)All Cash$2.09 billion$12.00$11.59184,5271/31/223.54%184.46%
+FBC4/26/21New York Community Bancorp, Inc. (NYCB)All Stock$2.6 B$48.58$46.93536,1623/31/223.52%19.48%
+PTRS11/04/21OceanFirst Financial Corp. (OCFC)Special Conditions$186 M$10.38$10.065,0486/30/223.18%7.40%
+UMPQ10/12/21Columbia Banking System, Inc. (COLB)All Stock$4.5 B$20.87$20.251,540,6436/30/223.07%7.13%
+ISBC7/28/21Citizens Financial Group, Inc. (CFG)Cash Plus Stock$3.5 B$16.49$16.033,096,2986/30/222.90%6.73%
+TSC10/20/21Raymond James Financial, Inc. (RJF)Cash Plus Stock$1.1 B$30.54$29.69169,3876/30/222.86%6.66%
+LEVL11/04/21First Merchants Corporation (FRME)Cash Plus Stock$323.5 M$41.65$40.6994,8566/30/222.35%5.47%
+GTS8/24/21GuideWell Mutual Holding Corporation (N/A)All Cash$665.93 M$36.00$35.2994,9856/30/222.01%4.68%
+PBCT2/22/21M&T Bank Corporation (MTB)All Stock$7.6 B$18.89$18.534,547,6293/31/221.96%10.83%
+NUAN4/12/21Microsoft Corp (MSFT)All Cash$19.7 B$56.00$54.997,910,0193/31/221.84%10.16%
+CONE11/15/21KKR and Global Infrastructure Partners (N/A)All Cash$15 B$90.50$88.973,763,0796/30/221.72%4.00%
+FLOW12/13/21Lone Star Funds (N/A)All Cash$3.8 B$86.50$85.111,541,7826/30/221.63%3.80%
+GSS11/01/21Chifeng Jilong Gold Mining Co., Ltd. (N/A)All Cash$470 M$3.91$3.8500881,7791/31/221.56%81.26%
+ROG11/02/21DuPont de Nemours, Inc. (DD)All Cash$5.2 B$277.00$272.76456,3926/30/221.55%3.61%
+VRS12/19/21BillerudKorsnäs AB (N/A)All Cash$825 M$27.00$26.59800,6306/30/221.54%3.58%
+OCDX12/23/21Quidel Corporation (QDEL)Cash Plus Stock$8.33 B$18.22$17.951,041,9556/30/221.50%3.48%
+MCFE11/08/21Investor Group comprised of Advent, Permira, Crosspoint Capital, CPP Investments, GIC and ADIA (N/A)All Cash$14 B$26.00$25.626,695,4016/30/221.48%3.45%
+ATC7/01/21MKS Instruments, Inc. (MKSI)Cash Plus Stock$6.5 B$24.95$24.6431,2103/31/221.42%7.88%
+FOE5/11/21Prince International Corporation (N/A)All Cash$2.1 B$22.00$21.71567,7483/31/221.34%7.39%
+WBT7/14/21Ali Holding S.r.l. (N/A)All Cash$4.8 B$24.00$23.72,452,0621/31/221.27%66.00%
+ESBK10/04/21Community Bank System, Inc. (CBU)All Cash$82.8 M$23.10$22.823,2863/31/221.23%6.79%
+EPAY12/17/21Thoma Bravo (N/A)All Cash$2.6 B$57.00$56.333,604,3706/30/221.19%2.77%
+KRA9/27/21DL Chemical Co., Ltd. (N/A)All Cash$2.5 B$46.50$45.97322,6146/30/221.15%2.68%
+MILE11/08/21Lemonade (LMND)All Stock$201.47 M$1.54$1.522,557,0726/30/221.08%2.52%
+VG11/22/21Ericsson (ERIC)All Cash$6.2 B$21.00$20.783,503,2746/30/221.06%2.46%
+GSKY9/15/21The Goldman Sachs Group (GS)All Stock$2.24 B$10.32$10.211,103,9923/31/221.05%5.81%
+CSLT1/05/22Vera Whole Health (N/A)All Cash$261.35 M$2.05$2.032,346,1903/31/220.99%5.45%
+APR1/10/22Owens & Minor, Inc. (OMI)All Cash$1.62 B$37.50$37.16868,1486/30/220.91%2.13%
+STFC7/12/21Liberty Mutual Holding Company Inc. (N/A)All Cash$2.48 B$52.00$51.5573,1443/31/220.87%4.83%
+STL4/19/21Webster Financial Corporation (WBS)All Stock$5.12 B$28.02$27.792,697,9102/01/220.83%37.89%
+ANAT8/09/21Brookfield Asset Management Reinsurance Partners Ltd. (BAMR)All Cash$5.1 B$190.00$188.4666,3896/30/220.82%1.90%
+FMBI6/01/21Old National Bancorp (ONB)All Stock$2.86 B$21.12$20.95634,7171/31/220.81%42.05%
+KL9/28/21Agnico Eagle Mines Limited (AEM)All Stock$9.53 B$40.38$40.062,017,6383/31/220.80%4.43%
+ACBI7/23/21SouthState Corporation (SSB)All Stock$542 M$29.76$29.53166,7873/31/220.80%4.40%
+FTSI10/22/21ProFrac Holdings (N/A)All Cash$407.5 M$26.52$26.32106,9923/31/220.76%4.20%
+FRTA2/22/21Quikrete Holdings, Inc. (N/A)All Cash$2.74 B$24.00$23.82352,7293/31/220.76%4.18%
+GNOG8/09/21DraftKings Inc. (DKNG)All Stock$1.52 B$7.10$7.05807,1293/31/220.75%4.15%
+MNR11/05/21Industrial Logistics Properties Trust (ILPT)All Cash$3.72 B$21.00$20.851,517,1496/30/220.72%1.67%
+MGP8/04/21VICI Properties Inc. (VICI)All Stock$17.2 billion$37.13$36.87998,7676/30/220.70%1.63%
+PAE10/25/21Amentum Government Services Holdings LLC (N/A)All Cash$1.9 B$10.05$9.99382,7793/31/220.60%3.32%
+INFO11/30/20S&P Global (SPGI)All Stock$44 B$118.32$117.652,306,7046/30/220.57%1.33%
+VCRA1/06/22Stryker (SYK)All Cash$3.09 B$79.25$78.914,227,5333/31/220.43%2.38%
+IHC11/09/21Geneve Holdings, Inc. (N/A)All Cash$813.9 M$57.00$56.7725,1513/31/220.41%2.24%
+GWB9/16/21First Interstate BancSystem, Inc. (FIBK)All Stock$2 B$32.57$32.44542,0723/31/220.40%2.23%
+TACO12/06/21Jack in the Box Inc. (JACK)All Cash$575 M$12.51$12.462,132,1993/31/220.40%2.22%
+HBMD7/13/21F.N.B. Corporation (FNB)All Stock$418 M$23.38$23.3945,9751/31/220.35%18.35%
+GCP12/06/21Saint-Gobain (N/A)All Cash$2.3 B$32.00$31.91476,32712/31/220.28%0.30%
+MIME12/07/21Permira (N/A)All Cash$5.8 B$80.00$79.912,888,5596/30/220.11%0.26%
+CPLG11/08/21Highgate and Cerberus Capital Management, L.P. (N/A)Special Conditions$1.5 B$15.65$15.642,473,1953/31/220.06%0.35%
+PVG11/09/21Newcrest Mining Limited (NCMGY)All Stock$2.8 B$14.49$14.49955,2993/31/22-0.02%-0.13%
+SC8/24/21Santander Holdings USA, Inc. (N/A)All Cash$12.7 B$41.50$41.52118,3933/31/22-0.05%-0.27%
+OMP10/26/21Crestwood Equity Partners LP (CEQP)All Stock$1.8 B$24.30$24.3294,3211/31/22-0.09%-4.48%
+BPMP12/20/21BP p.l.c. (BP)All Stock$2.45 B$17.66$17.68467,7173/31/22-0.12%-0.68%
+PSXP10/27/21Phillips 66 (PSX)All Stock$14.5 B$41.72$41.99801,8143/31/22-0.64%-3.56%
+RRD12/14/21Chatham Asset Management, LLC (N/A)All Cash$2.3 B$10.85$11.022,137,4506/30/22-1.54%-3.59%
+ABTX11/10/21CBTX, Inc. (CBTX)All Stock$1.5 B$43.13$43.8393,1196/30/22-1.59%-3.69%
+NES12/13/21Select Energy Services, Inc. (WTTR)All Stock$45 M$1.65$1.73143,0123/31/22-4.60%-25.41%

Conclusion:

It was a mixed-bag of activities on the M&A front last week, with one of the largest entertainment deals announced, a deal terminated, multiple active deals receiving required approvals and a continuing bidding war. After terminating its deal with Atlas Holdings and agreeing to be acquired by Chatham Asset Management, R. R. Donnelley & Sons (RRD) continues to receive higher bids. The latest bid received by RRD last week was for $11.50.

SPAC activity improved last week with three business combinations announced. In our deals in the works section, we have been tracking the potential acquisition of Kohl’s Corporation (KSS). We added KSS to our list of potential deals on December 5, 2021, when The Wall Street Journal reported that activist investor Engine Capital was urging Kohl’s Corp. (KSS) to consider a sale of the company. Kohl’s has been approached by suitors since the beginning of the year, which include Acacia Research (ACTG) and Sycamore Partners.

Disclaimer: I have long positions in Arena Pharmaceuticals (ARNA), Bluerock Residential Growth REIT (BRG), Change Healthcare (CHNG) and Pfizer (PFE). I also have put options in Change Healthcare. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.