ATVI Arbitrage?

[jnw]

Buffet is doing a Workout / Arbitrage bet on ATVI.  His cost basis is around $80 I presume and MSFT said they would like to buy it at $95.   SO about a 20% or so increase.

Right now ATVI is selling for $77.84, so if one bought it at that price it'd be a 22% arbitrage deal.

What do ya think?  Was thinking about experimenting with it. Perhaps $500.  I'm already putting $10k in I-bonds at current rate of 9.62%.   

It'll probably go through right? I mean MSFT makes the XBOX and well there shouldn't be an antitrust issue?  It's in the realm of their business.

If the deal falls through and ATVI dropped, I'd probably just hold it long term.

I dunno perhaps it is too much risk for a small upside benefit?

[AccidentialMustache]

I think you haven't thought this through and don't understand either company. Buffet's rules also include "only invest in things you understand."

MS has the (PC) software store. Blizzard also has a software store. After merge, they aren't likely to maintain two stores. There's some instant anti-trust regulator attention.

MS having PC and Xbox, Activision-Blizzard makes games. So if after purchase, they make games only for PC and Xbox, again there's something to smell funny to anti-trust regulators. All MS has to do to "win" in the PC-vs-Mac and Xbox-vs-Nintendo/PlayStation is buy up all the software houses and not publish to the other platforms.

Xbox (hardware, operating system, online services, software store) isn't really any overlap with A-B. A-B has a software store but it is for the PC, not Xbox.

MS owns plenty of other game studios. Speaking as a gamer, maybe concerningly many. But Xbox isn't a game studio or publisher.

[jnw]

I've known Microsoft since the 80's :)  Ran MS-DOS 3.3 on a 13MB HDD.  Then followed by MS-DOS 4.0, 5.0, 6.0 and 6.22l.  First windows was Microsoft Windows 386 followed by Windows 3.0 in 1990; shortly after Windows 3.1 & 3.11.. then NT 3.5, Windows 98, NT 4.0, Windows 2000 Advanced Server, Vista etc.  Then I switched to Mac in 2009.

I also owned the original Xbox and have the Xbox Series X now.

I also know about Microsoft Azure, a competitor to Amazon AWS.

I also know Activision since the 80's -- Atari 2600 games;  Also know Blizzard and that Activision bought them -- played a lot of World of Warcraft :)

You're right though, thanks for sharing all that.  That's why I asked here; you are right I really don't much about antitrust cases, just that Microsoft always beat them in the past.  I know WoW runs on a Mac -- used to play it on Windows then switched to Mac -- would be a shame if Microsoft made it so it only runs on Windows.  Mac is becoming a great platform for gaming now with its low heat Apple silicon M1's.

[Niceday]

nah, Microsoft isn't enough of a dominant player in gaming to cause anti-trust concerns. The only concern is probably the lawsuits that ATVI is dealing with. Just my opinions.

[yachi]

I just opened some Activision positions.  I straight bought some stock in an HSA account, hoping for a 1-year return around 20%.  In IRA accounts I bought June 16, 2023 $70 Call options.  The options cost me $13.75.  Typically they'd reach over $25 when/if the stock hits $95.  So I'm hoping for an 80% return or so.  But in the case of a buyout they might slightly lag the stock price, and I might have to sell them for $20 when the stock gets close to $95.  That would be a 45% return.

Since you mentioned your backup plan is continuing to hold the Activision stock, know that the rumor is the stock would revert to trading back at $60 if the deal doesn't go through.  It seems other videogame makers and online stocks have done rather poorly the last 6 months, whereas Activision is up in the last 6 months due to the Microsoft offer.

[jnw]

I just opened some Activision positions.  I straight bought some stock in an HSA account, hoping for a 1-year return around 20%.  In IRA accounts I bought June 16, 2023 $70 Call options.  The options cost me $13.75.  Typically they'd reach over $25 when/if the stock hits $95.  So I'm hoping for an 80% return or so.  But in the case of a buyout they might slightly lag the stock price, and I might have to sell them for $20 when the stock gets close to $95.  That would be a 45% return.

Since you mentioned your backup plan is continuing to hold the Activision stock, know that the rumor is the stock would revert to trading back at $60 if the deal doesn't go through.  It seems other videogame makers and online stocks have done rather poorly the last 6 months, whereas Activision is up in the last 6 months due to the Microsoft offer.

I wish I knew about options but I am overwhelmed enough just with stock picking lol.  In reality I should be just sticking with VTI/ITOT but I get bored I guess lol.  If I did options I'd probably do something wrong and lose thousands.  E.g. I watched this horror story from some guy on youtube complainign how he lost thousands of dollars on Webull with options.. inadvertantly having to pay dividends.

[zoro]

Buffet is doing a Workout / Arbitrage bet on ATVI.  His cost basis is around $80 I presume and MSFT said they would like to buy it at $95.   SO about a 20% or so increase.

Right now ATVI is selling for $77.84, so if one bought it at that price it'd be a 22% arbitrage deal.

What do ya think?  Was thinking about experimenting with it. Perhaps $500.  I'm already putting $10k in I-bonds at current rate of 9.62%.   

It'll probably go through right? I mean MSFT makes the XBOX and well there shouldn't be an antitrust issue?  It's in the realm of their business.

If the deal falls through and ATVI dropped, I'd probably just hold it long term.

I dunno perhaps it is too much risk for a small upside benefit?

So I actually had this in my special situation portfolio before the Berkshire announcement, as a risk arb. Funnily enough I used the Benjamin Graham formula (from his 1946 article in the Analysts Journal) to assess the probabilities. You know how Buffett is about Ben Graham - so I bet he used this exact framework before they bought a ton as a risk arb.

Indicated annual return = GC – L(100% - C) / YP
Where:
G be the expected gain in points in the event of success;
L be the expected loss in points in the event of failure;
C be the expected chance of success, expressed as a percentage;
Y be the expected time of holding, in years;
P be the current price of the security.

In this ATVI situation we already know Todd or Ted at Berkshire were happy to buy ATVI at this price before the announcement as it was in their portfolio, so you have to think they believe the L in the formula above is small or 0. If this is the case this makes the indicated annual return over 20%  (Heads you win, tails you get an undervalued equity that's likely to do well on its own)