The VanEck Video Gaming and Esports ETF (ASX:ESPO) looks set for a major shakeup. Here’s why

This ETF could be in for a shakeup…

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Key points

  • This ASX gaming ETF has only been listed for less than two years
  • Microsoft is acquiring gaming giant Activision Blizzard for US$68.7 billion
  • This could result in a big shakeup for this ETF

The VanEck Video Gaming and Esports ETF (ASX: ESPO) is one of the newer exchange-traded funds (ETFs) on the ASX. Since its debut back in September 2020, this ASX share has been a rather ho-hum investment thus far. It’s up 10.15% since its inception around 18 months ago. But it’s also down 5.11% over the past year, including a 13.8% drop from where it was just back in mid-November.

But with some big news in the gaming space overnight, ESPO could be set for one of its largest shakeups since it first graced the ASX boards.

Microsoft to acquire gaming giant Activision Blizzard

Why? Well, overnight (our time), we got wind of some big news. The US tech titan Microsoft Corporation (NASDAQ: MSFT), the no-introduction-needed company behind the Office software suite and the Windows operating system, intends to acquire the gaming giant Activision Blizzard Inc (NASDAQ: ATVI).

Activision Blizzard is one of the largest gaming companies in the world. It owns valuable intellectual property such as Call of Duty, Starcraft, Diablo, and World of Warcraft franchises. As well as some popular mobile games like Candy Crush.

So according to our Fool colleagues in the US, Microsoft is putting forward an all-cash offer worth US$68.7 billion. That equates to around US$95 a share. Activision Blizzard shares closed at US$65.39 a share last week, but opened at US$86.55 a share last night when the deal was public knowledge. It closed at U$82.31 a share this morning, up 25.88%.

It’s not hard to see why Microsoft might be pursuing the deal. The company is already a gaming powerhouse with its Xbox series of video game consoles as well as ownership of several popular franchises, such as Halo and Gears of War.

But my colleague estimates that, if the deal goes through, it “would make Microsoft the third-largest video game company in the world by revenue, trailing only Chinese tech giant Tencent Holdings and Sony“. It would also result in the addition of “nearly 400 million monthly active users to Microsoft’s gaming business”.

What does this mean for ESPO?

So why is all of this relevant to the VanEck Video Gaming and Esports ETF? Well, as it stands today, Activision Blizzard is the fifth-largest holding in ESPO’s portfolio. This ETF currently holds 25 companies that are selected to give investors exposure to “a diversified portfolio of the largest and most liquid companies involved in video game development, eSports and related hardware and software globally”.

At its fifth spot in the ETF, Activision Blizzard currently commands a near 6% weighting. Microsoft doesn’t even make the cut for ESPO at present. But that of course could change if this deal goes through. So while the deal isn’t expected to be closed until 2023 if all goes to plan, it still heralds a dramatic change for this ASX ETF.

The VanEck Video Gaming and Esports ETF charges a management fee of 0.55% per annum.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Microsoft. The Motley Fool Australia has recommended Activision Blizzard and VanEck Vectors ETF Trust - VanEck Vectors Video Gaming and eSports ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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