aQuantive/Microsoft Clears Anti-Trust Hurdle, AQNT Gains $1B

On May 30th I commented that aQuantive (AQNT) was sitting at $5B, even though Microsoft (MSFT) had agreed to pay $6B for the company.

Per share, MSFT agreed to pay $66.50 (an 85% premium) even though as recently as May 30th, the stock was only at $63.75.

Friday - July 6th - marked the end of the anti-trust period where if anyone had an objection, they could raise it. The deal cleared that hurdle Friday. As a result, AQNT is up $1 because all that remains is a vote by AQNT’s board, and unless they suddenly grow an aversion to being stinking rich, they will approve.

The discrepancy of $1B in the market cap of AQNT after the deal was announced and when the deal will close was due to uncertainty about whether or not the feds would approve it. Sure, while DoubleClick/Google (GOOG) combines two advertising leaders, in this MSFT is buying something new in a business it’s not in. The antitrust issue is and was, somewhat moot.

That is why I did not think the market was pricing this correctly, of course, the market is usually right.

Regardless, most people knew that this one would not backfire and the feds would not object, as such, if anyone had money sitting around, they could have bought a bundle of shares and make an almost risk-free profit (arbitrage) and I suspect many did. There is, after all, an entire subset of the investment community that partakes in merger arbitrage, and this was one of the more obvious, risk-free opportunities.

If you would have spent $10M and bought roughly 150,000 shares, you could have made $415,000 in profit in a couple of months ($66.50-$63.75 x 150,000). That’s not bad at all.

Someone should really hand me a billion dollars to manage.

Disclaimer: I own shares in MSFT. This should not in any way be construed as investment advice.

Comments

[Alan Brochs...:]

I think that you are correct that part of the shrinkage of the differential was due to the increased certainty of the deal, but your math is off. You talk about $1 billion differential, but that isn't the case. The bulk of the difference between $5 billion and $6 billion is based upon the share count. Your calculation assumes outstanding shares (78.14mm) instead of the fully-diluted share-count of 89.06mm(which incorporates options).

2007 Jul 09 01:32 PM

[Ashkan Karb...:]

Alan, Thanks for the clarification. Though technically, AQNT rose from $5.03B to $5.19B, the headline was an editorial addition (not mine). My post had little with the gain based on market cap, solely based on price change movement.

2007 Jul 09 05:28 PM