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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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).
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