To The Moon

The breakup of $Activision Blizzard(ATVI)$ and $NetEase(NTES)$ becomes a hot topic today after the end of their 14 years of partnership.

On November 17, Activision Blizzard issued an official statement that

its partnership with NetEase expires in January 2023 and will not be renewed, suspending most of Blizzard's games in mainland China.

As a result, $NTES-S(09999)$ fell sharply, closing down 9.05%.

Sources familiar with the matter revealed that the core reason for the breakup between Blizzard and NetEase lies in the fact that the two sides have never agreed on the price of the deal.

Blizzard's withdrawal from China may be connected with revenue issues as China’s revenue only accounted for 3%.

Activision Blizzard - the prominent gaming company

Activision Blizzard holds a prominent position in the video gaming industry.

photo from google

• Call of Duty defines the first-person shooter game genre.
• Overwatch is Blizzard's single best-selling title, with more than 50 million copies sold.
• Diablo is another franchise with a massive player-base. The action role-playing game has witnessed three installments with the most recent one, Diablo III, selling 30 million copies.
• World of Warcraft was released way back in 2004. The massively multiplayer RPG game peaked at 12 million subscribers.

Buffett - the largest institutional investor of Blizzard

Before the $Microsoft(MSFT)$ deal, Warren Buffet bought the shares of $Activision Blizzard(ATVI)$. Buffett's $Berkshire Hathaway(BRK.B)$ is already the largest institutional investor in Activision Blizzard.

Activision Blizzard ranks 9th in Buffett's top 10 holdings and has more weight than new-added $Taiwan Semiconductor Manufacturing(TSM)$ .

Photo from New York Post

According to Berkshire's report for the third quarter of 2022, its holdings amounted to 60.14 million shares, making it the company's largest institutional investor, with the market value of its position reaching $4.471 billion, higher than $4.1 billion in TSMC.

Warren Buffett, as a conservative investor, doesn’t have much tech holdings. In his top 10 longest positions, there are 3 tech stocks- AAPL, ATVI, and TSM. These three stocks have a combined position of nearly 45%.

Blizzard loved by $Microsoft(MSFT)$ - the biggest acquisition in US

In January this year, Microsoft announced

it would acquire Activision Blizzard for$95.00 per share, in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard's net cash.

If successful, the deal would be the largest acquisition in US tech company, making Microsoft the third largest gaming company in the world by revenue.

A deal of this magnitude needs to clear various regulatory hurdles before becoming official.

The Microsoft-Activision Blizzard acquisition has been cleared in Brazil and Saudi Arabia, but it still faces numerous hurdles in other countries and regions. European Commission has tentatively set a Nov. 8 deadline for the investigation, and the US Federal Trade Commission is expected to issue a ruling in late November.

Bottom Line

Blizzard's love story of $NetEase(NTES)$ may end yesterday, but the story with $Microsoft(MSFT)$ may have results in November.

Before the compeletion of the deal, $Activision Blizzard(ATVI)$ will continue to be a good choice for sell put as $Microsoft(MSFT)$ will acquire it at $95 per share, compared to its current price of $73.

How do you think of their stories?

Will you buy $Activision Blizzard(ATVI)$ for arbitrage?

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