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Advisor(s)
Abstract(s)
Globalization, geographic diversification and deregulation of markets have led
to an increasingly competitive environment for most companies. Increasing
competition often leads to higher efforts to persuade consumers to by the given
company’s product, and consequently margins are affected. Moreover, this
development of the business environment also faces as a threat to most companies’
organic growth. For this reason, companies often envision mergers and acquisitions as
a solution to this problem. The decision of taking on a larger transaction to acquire
another company is often motivated by the fact that it may create additional
opportunities for the company, enable higher growth, and ultimately create
shareholder value.
Mergers and acquisitions are especially apparent in industries that are highly
affected technological innovations. The rationale for this is grounded in the potential
target company’s technological assets or specific capabilities, which may pose as
highly valuable for the acquirer. The acquisition of the target company enables the
transfer of these skills and may create a competitive advantage, which in turn creates
a driver for long-term sustainable growth.
This paper will analyze the possibility of creating additional value through
mergers and acquisition. The paper will start of by surveying literature on various
theories on valuation of companies. This part will also present evidence on what
valuation techniques that proves to yield reliable results, and discuss value creation in
the light of mergers and acquisitions. In the second part the paper the presented theory
will be put into practice by through a proposed M&A-situation between Microsoft
Corporation and Activision Blizzard, Inc. This part will present a thorough companyand
industry analysis that will provide the basis for a valuation of the companies, both
on a standalone basis and on a consolidated basis. The final part of the paper will
present the acquisition process itself, and discuss issues that are related to the
acquisition. This part will also present the optimal way for Microsoft to proceed in
acquiring Activision Blizzard.
When valuing the companies individually, both companies show indications
of being undervalued compared to their average market values for the last year.
Microsoft value is displaying signs of being overly undervalued, while Activision
Blizzard only is slightly undervalued. A valuation of the combined company reveals
that there were considerable opportunities for additional value creation through a
merger.
Finally, based on the analysis and the valuations in the paper suggests that that
Microsoft should proceed with the acquisition. The acquisition will be presented to
Activision Blizzard’s shareholders as a friendly tender offer, in order to persuade
them to sell their shares in the company. The price offered for the outstanding shares
of the company is suggested to provide current shareholders with a premium of 29.4%
to the average market capitalization of the company. Moreover, the acquisition will be
financed with a cash-only transaction, as to maintain financial flexibility and in line
with Microsoft’s acquisition history.