Call of Duty, Diablo to be axed from Sony PlayStation on Activision Blizzard, Microsoft deal?

Sony Group Corp. expects Activision Blizzard Inc. games to remain available on its PlayStation platform even after the completion of the publisher’s proposed sale to rival Microsoft Corp. “We expect that Microsoft will abide by contractual agreements and continue to ensure Activision games are multiplatform,” a Sony spokesman told the Wall Street Journal on Thursday. Sony shares plummeted 13% in Tokyo on Wednesday in the wake of Microsoft’s announcement of a $69 billion deal to acquire Activision and its portfolio of big-name franchises such as Call of Duty, Diablo, World of Warcraft and Candy Crush Saga. The blockbuster deal was seen as a major coup to secure exclusive content for Microsoft Xbox Game Pass subscription service and a threat to Sony’s traditional console business model.

Microsoft hasn’t yet detailed how it plans to leverage Activision’s content and games lineup in its broader entertainment strategy, though Xbox chief Phil Spencer said as part of the announcement that “Activision Blizzard games are enjoyed on a variety of platforms and we plan to continue to support those communities moving forward.”

Microsoft-Activision deal gives merger speculators a new darling

(Reuters) Hedge funds that earn returns speculating on precarious acquisitions were handed a gift this week when Microsoft Corp agreed to buy "Call of Duty" maker Activision Blizzard for $68.7 billion in cash.

The transaction will require antitrust approval in the United States as well as other major jurisdictions including the European Union and China. It comes as President Joe Biden's administration is raising its scrutiny of big mergers, blaming some of them for price increases on consumers that fuel inflation.

Activision's shares ended trading at $82.15 on Wednesday, well below the $95 per share deal price, reflecting concerns that regulators may shoot down a combination that would create the third biggest gaming company, after Tencent and Sony Group Corp.

This infers a 57% chance of the deal closing, based on Activision's closing share price of $65.39 before the deal was announced.

The wide spread gives investors willing to bet on whether the deal will be completed the opportunity to score double-digit returns. At a time when so-called merger arbitrage strategies have trailed the broader stock market's returns, it is an attractive but also risky proposition.

Last year, merger arbitrage funds returned nearly 10% according to Hedge Fund Research data, beating returns posted in 2020, 2019 and 2018, but trailing the broader S&P 500 stock market's 27% gain in 2021.

For some investors, Aon's scuttled $30 billion acquisition of Willis Towers Watson as the U.S. Justice Department sued to block the deal hurt returns.

Now they are looking to come back, hoping that this deal will also force competitors into making deals of their own.

"The positive outlook for event-driven and merger-arbitrage oriented firms in 2022 has been accelerated with the Microsoft-Activision deal," said Hedge Fund Research Inc President Ken Heinz.

Microsoft and Activision gave themselves until June 2023 to complete the transaction, giving hedge funds months to handicap how regulators will react to Microsoft bundling its Xbox platform with Activision's popular games, such as World of Warcraft and Diablo.

Investors may get hints on the Biden administration's stance soon as the Federal Trade Commission is expected to weigh in on defense contractor Lockheed Martin's planned $4.4 billion acquisition of Aerojet Rocketdyne and the Justice Department will decide on healthcare insurer UnitedHealth's $13 billion bid for healthcare analytics and technology vendor Change Healthcare.

Hedge funds like Millennium, Tiedemann Advisors and Pentwater Capital spend a chunk of their capital betting on mergers and many have held Microsoft and Activision for some time. Mutual funds The Merger Fund run by Westchester Capital Management and The Arbitrage Funds run by Water Island Capital offer similar strategies.

Representatives for the firms either declined to comment or did not respond to requests for comment.