Microsoft Set to Acquire Activision in $69 Billion Metaverse Investment

January 19, 2022: Microsoft Corporation has announced its acquisition of Activision Blizzard, the company behind “Call of Duty,” for a staggering $68.7 billion—the largest deal ever in the gaming industry, as leading tech firms gear up for a virtual future.

This acquisition, unveiled on Tuesday, marks Microsoft’s most significant move yet and will be the largest all-cash deal in history, enhancing its competitive position in the thriving videogame market against giants like Tencent and Sony.

It also signifies Microsoft’s investment in the “metaverse,” immersive online spaces where individuals can work, play, and connect, mirroring strategies adopted by many of its primary rivals.

“Gaming is an incredibly dynamic and thrilling segment of entertainment across all platforms today and will significantly influence the evolution of metaverse environments,” said Microsoft CEO Satya Nadella.

Microsoft, a tech powerhouse largely recognized for corporate software like Azure and Outlook, has offered $95 per share—a 45% premium over Activision’s last closing price.

Activision’s stock rose 26% to $82.10 but remained lower than the offer price, indicating concerns that regulatory hurdles could impede the deal.

Unlike Google and Facebook, Microsoft has largely escaped stringent scrutiny, but this acquisition, which would elevate it to the world’s third-largest gaming company, is likely to attract regulatory attention, as noted by Andre Barlow from Doyle, Barlow & Mazard PLLC.

“Microsoft is already a significant player in gaming,” he stated.

However, a source familiar with the situation mentioned that Microsoft is prepared to pay a $3 billion break fee if the deal doesn’t go through, implying confidence in securing antitrust approval.

Meanwhile, Microsoft’s shares fell by 1.9%.

This deal occurs during a challenging period for Activision, known for titles like “Overwatch” and “Candy Crush”. Prior to the announcement, its shares had dropped over 37% from a record high due to scandals involving allegations of sexual harassment and misconduct among top executives.

The company continues to address these allegations, stating it has dismissed or removed over three dozen employees and disciplined an additional 40 since July.

CEO Bobby Kotick, who disclosed that Microsoft had approached him regarding the buyout, will stay on as CEO of Activision after the merger, although plans indicate he may exit following its completion, according to a source familiar with the situation.

During a conference call with analysts, Nadella emphasized the importance of cultural integrity within Activision without directly addressing the scandals, stating the necessity for the company to adhere to its renewed cultural commitments.

“It is essential for Activision Blizzard to advance its cultural commitments,” he remarked, adding, “the success of this acquisition hinges on that.”

‘METAVERSE ARMS RACE’

According to Newzoo, the global gaming market generated $180.3 billion in revenue in 2021, with expectations of growth to $218.8 billion by 2024.

Microsoft already has a significant presence as one of the top three console manufacturers and has made considerable investments in the sector, including acquiring “Minecraft” developer Mojang Studios and Zenimax in multibillion-dollar deals.

Furthermore, it has introduced a highly popular cloud gaming service with over 25 million subscribers.

Newzoo reports that Microsoft’s gaming market share was 6.5% in 2020, and acquiring Activision would boost it to 10.7%.

Executives highlighted Activision’s 400 million monthly active users as a key attraction of the transaction, emphasizing the significance of these communities for Microsoft’s metaverse initiatives.

The extensive library of games from Activision could enhance Microsoft’s Xbox platform, giving it a competitive advantage over Sony’s Playstation, which has long benefitted from a more consistent array of exclusive titles.

“Companies like Netflix have already expressed interest in expanding into gaming, but Microsoft has made a bold move with this generous offer,” stated Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.

Microsoft’s bid amounts to 18 times Activision’s 2021 EBITDA, in contrast to the 16 times EBITDA valuation of Take-Two Interactive’s cash-and-stock deal for Zynga last week.

As per Refinitiv data, the Microsoft-Activision deal is set to be the largest all-cash acquisition ever, surpassing Bayer’s $63.9 billion offer for Monsanto in 2016 and InBev’s $60.4 billion bid for Anheuser-Busch in 2008.

“This deal represents a significant turning point for consumer-oriented business, and, more crucially, Microsoft’s acquisition of Activision marks the beginning of a metaverse arms race,” remarked David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors.

“We are optimistic that the deal will proceed,” he added, though he cautioned: “It will certainly attract regulatory scrutiny.”

Reuters