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
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.
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