Activision jumps as court allows Microsoft's $69B acquisition, still potential 50% APR?

$Activision Blizzard(ATVI)$ ‘s aquisition by $Microsoft(MSFT)$ finally come to a major breakthrough on July 11th when a US federal judge rejected the Federal Trade Commission's (FTC) request for a temporary restraining order to prevent Microsoft from completing the acquisition.

The court ruling allows Microsoft to seek completion of the merger with Activision Blizzard in any market except the UK before the final deadline on July 18th. As I mentioned before, this acquisition case is the "last stop" of a potential acquisition with an annualized return of 40%.

Prior to today's news, ATVI's stock price was at $82, with a remaining 15.8% gap from the acquisition price of $95. However, with this news, the stock price jumped as high as $92.81 and closed at $90.99.

Why is this acquisition be approved?

Prior to July 11th, this acquisition obtained approval from regulatory bodies in almost every country, including Japan (the home country of Sony, Microsoft's biggest competitor to Xbox and the parent company of PlayStation), except for the UK.

The main focus of regulation is on antitrust scrutiny, expressing concerns about potential monopolistic issues for the future release of "Call of Duty" on PlayStation.

However, Microsoft has emphasized this matter many times and has even signed an agreement with Sony to ensure smooth future releases. From an investor's perspective, for such a large company like Microsoft, using "Call of Duty" as leverage to force console gamers to switch from PlayStation to Xbox, is it a gain in short-term profits or a loss in reputation?

Will Call of Duty still be on PlayStation? - Dexerto

Is it that the British people don't understand such a simple truth? Not necessarily.

In my previous article titled "Can the UK Stop Microsoft's Acquisition of Activision Blizzard?", Europe has always been skeptical of major US tech companies but cannot do without them. Their focus on antitrust measures is more of a preparation for future fines. In other words, you can make money in Europe, but you have to pay protection fees. Therefore, the crucial regulatory approval for this acquisition still depends on the decision of the United States.

As Microsoft previously stated, if the UK continues to dissent, they will withdraw from the UK market (with Activision Blizzard's games). When gamers protest in front of the government's door, it will be "another beautiful scenery."

The recent ruling by the US court against the FTC's case is not without controversy.

The US Congress has different views on antitrust in the digital age, and the court's perspective focuses on how companies accumulate and leverage power to stifle competitors. The FTC, in its internal litigation, did not provide sufficient evidence to demonstrate a likely victory. The FTC's argument is that if this deal is completed, Microsoft may make some games exclusive to its own gaming console or weaken the gaming experience of Activision games on rival platforms.

Personally, I think there was no need to argue from a logical perspective at the beginning of this debate; it is as absurd as "proving that your mother is your mother." I believe the essence of gaining approval lies in the fact that this deal is beneficial to the United States itself.

Investors who missed this train still have a chance of 50% potential annulized return?

Unlike other acquisitions, after the FTC's loss (which means approval), the stock price did not directly rise to the vicinity of the acquisition target price of $95 but left a gap of $4-5 ($4.2%-5.2%). If this case is finally confirmed within a month, the potential annualized return could reach 50%.

Investors who have benefited from this price increase may consider exiting because they have already enjoyed most of the gains, and in terms of returns, it would be sufficient. This is also the main reason why the price dropped from $92.8, and unless there are unexpected events, the stock may continue to decline on July 12th.

So what will happen in the last month?

The FTC may continue to appeal, but the chances of success are relatively low because it still needs to find sufficient evidence to prove Microsoft's malicious monopoly. Therefore, if you enter at this point, there is a good probability of enjoying the remaining price increase within a month.

Of course, greater returns can be obtained through options trading. Firstly, in terms of calls, you can confidently sell calls above $95. Whether it's covered calls or naked selling, the value beyond the acquisition target price is nothing more than time value remaining. Currently, the value of the August 18th monthly option with a strike price of $95 is $38, requiring a margin of $2,032, and after deducting fees, the annualized return is about 10%, which exceeds the current money market funds.

Of course, it's also good to sell options with longer expiration dates. If the acquisition speeds up by then, options with longer terms will all expire within one month after the successful acquisition date. Then, in terms of puts, you can choose to sell puts at various price levels. If you are concerned about possible drama from the FTC, you can sell some puts around $85 for stability. The value of the August 18th monthly option with a strike price of around $85 is approximately $70-80, and the current price provides an annualized return of about 20%. Of course, you can directly sell at-the-money puts near $90 or even higher to achieve higher returns.

Currently, the UK market is no longer a concern; it depends on whether the FTC will create other obstacles.