When a deal like Microsoft buying Activision goes through, does the money that the company is paying go to the company being bought? Does it go to the shareholders? Does the Activision stock just go away?
The reason I am confused is, if Microsoft gives Activision billions of dollars, at the end of the day, isn’t Microsoft effectively giving themself billions of dollars?
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I’m using Microsoft and Activision as an example, but I am curious about how this works in general.
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Microsoft offered to buy all shares of Activision at a certain amount per share, then since Activision’s shareholders have enough of a majority to allow the purchase, anyone who owns Activision shares has to sell them whether they voted to or not because that’s what they agreed to when they bought the shares
The money goes to whoever owns the company in the first place.
Whether it’s a single person, a family, or millions of stockholders.
The company doing the acquiring is buying ownership from the other company’s current owners.
It sounds like your intuition is leading you to the right conclusion. The shareholders in the company that’s being acquired will receive the buyout proceeds.
Let’s say Corp X buys Corp Y. They agree to some kind of value for Y shares, say $50/share. Corp X can either pay all of Corp Y’s shareholders $50/share, or it can give them each $50 worth of Corp X stock per share (or a mix of both). (This will all be hammered out by agreement well before any money or shares are exchanged.)
Whether the Corp Y stock (or the Activision stock, in your example) “goes away” depends on how the transaction is structured. For example, if Corp X wanted to buy Corp Y and keep it running as a subsidiary, it would just stash all the Corp Y shares into Corp X’s treasury (and naturally Corp Y becomes delisted from public trading along the way). If Corp X just wants to buy Corp Y’s assets and fold them into its own business, it can buy the shares, cause Corp Y to transfer its assets to Corp X, and then just dissolve Corp Y (effectively vaporizing the company’s shares).
Let’s say Activision share price is worth $1 and they have 100 shares (market cap is $100).
Microsoft says they’ll buy Activision for $2 per share (or pay $200 to acquire the company).
They give $2 to every shareholder and Activision stocks are removed and fall under Microsoft.
It goes to the Activision share holders. Generally a buyout will be a mix of cash and shares. Some times it’s even just a share conversion, very rarely is it just cash, as that costs too much money.
Let’s make a hypothetical example. Microsoft will buy Activision in such a way that for every 3 Activision shares you have you get 1 Microsoft share and 30$. If you have a non 3 divisible amount the extra is just cash at 70$ a share. So if you have 302 shares of Activision you end with 100 shares of Microsoft and 3140$. 300 shares becomes 100 + 3000$ and your last 2 get converted into 140$.
Q: Where do these 100 Microsoft shares come from?
A: Microsoft share printer go brrrr
Q: Doesn’t that mean that a Microsoft share is now a smaller ownership in the company?
A: yes
Q: doesn’t that mean a Microsoft share is worth less?
A: No, as we assume the stuff they get from Activation has value. For example WOW probably makes money. As Microsoft now owns WOW that money is Microsoft’s. So yes one share of Microsoft is now a smaller percentage of the company but it’s a more valuable company. If the deal is a good deal a Microsoft stock should be worth more that before.
You are on the right track with your initial assumptions. The details is specified in the contract and can vary quite a bit. But in general Microsoft will be paying the shareholders and the stock will just go away as they are now all owned by Microsoft. This is a very common thing to do.
In some cases though the buyer does not actually have all the money in cash. The shareholders might then be convinced to accept stock in the company as compensation. In your example that would mean that Activision shares would be traded for Microsoft shares. It is also possible for the buyer to take up a loan to get the cash and then this loan can be transferred to the company that got bought. This is what Musk did with Twitter which caused Twitter itself to lose 44 billion dollars ending up in massive debt and with huge interest payments.
When you buy a company you are basically paying off anyone else’s interest in the company. By interest, I mean owners. Say I set up a business and I have this killer idea. I hire a few people, we need to raise capital so we all throw in our own cash. When we do that, we are dividing the interest in the company by how much we threw in. Say it is an even split, it usually isn’t, but lets just say it is. Now the company gets REALLY successful, we are raining in profits, YAY! Now, someone comes into buy us, they don’t buy out our original investment, they buy out whatever percentage that investment was when we initially paid in at the current value. If I own a third, and the company is worth X millions, I am owed a 3rd of that if someone buys the company.
That is how Microsoft minted a millionaire chef, as Microsoft grew he bought shares that weren’t public, his money funded their growth. He had a stake in the company, however small. When they went public, he had to get paid proportionate to his ownership stake at the public offering price. Instant millionaire.
My friend ‘rode the rocket’ at the company she is now CEO of. When she first started they surveyed employees for investment dollars. She threw in, not a huge percent, but a bit. When they got bought out by a conglomerate, her $25,000 stake ended up being $323,000 plus a contract with the conglomerate. She doesn’t have an ownership stake anymore, because the owners are now the public investors of the purchasing institution. Part of her pay is stock in the parent corp with a sweet dividend, so she is basically set.
People who own portions (shares) in the company getting taken over get paid money in proportion to the amount of the company they own, sometimes instead of cash they are paid in shares in the new company.
The money goes to the company’s shareholders or owner(s). In the case of Activision, it’s a public company so all the shareholders get the per share purchase price in return for any shares they own and the stock goes away.
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