When one company buys another, like Microsoft and Activision, where does the money go?

Question

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.

In: 2

Answer 1

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.