Microsoft and Activision Blizzard: the $68.7 billion acquisition

Activision Blizzard, a video game company, has sold to Microsoft for $68.7 billion all-cash. Activision will cost Microsoft $95 per share, under the price agreement. Activision’s stock ended the day at $82.31, up more than 25%. Shares of Microsoft closed down about 2%. Microsoft’s largest acquisition to date is LinkedIn, acquired for $26.2 billion in 2016. As a result of reports alleging sexual misconduct and harassment among its executives, Activision, which is known for games like Call of Duty and Tony Hawk’s Pro Skater, has been embroiled in controversy for several months. After an investigation, Activision fired dozens of executives.

According to the agreement, Activision’s CEO Bobby Kotick will continue to serve as CEO throughout the transition. Kotick has faced calls to resign due to cultural problems within his company. Activision will report directly to Microsoft’s Xbox boss Phil Spencer after the deal closes, suggesting Kotick could depart after the transition. Wall Street Journal reports that Kotick will resign after the deal closes. Microsoft said it plans to close the deal in fiscal 2023. However, U.S. regulators have indicated they will be far more aggressive in evaluating large acquisitions. Particularly in the tech sector, so there’s a chance the deal could be killed under government scrutiny. The gaming division of Microsoft has expanded over the past few years. It acquired Minecraft maker Mojang for $2.5 billion in 2014. Last year, Microsoft purchased game developer Bethesda for $7.5 billion.

Activision the first step

Microsoft’s deal also fits into a long-term strategy as it competes with Meta (formerly Facebook) to develop technologies that will create a virtual world. Microsoft CEO Satya Nadella was the first CEO to publicly acknowledge the value of the metaverse, months before Meta CEO Mark Zuckerberg. The virtual world industry is dominated by gaming today, but the hope is that they will expand to meet the needs of other demographics and replace social networking activities online.

Nadella described his vision of a metaverse in an interview Tuesday morning. “We don’t see a single, central metaverse,” he explained. Rather than one dominant company controlling most of the virtual world activity, Nadella sees the future of virtual worlds as an opportunity for many software makers. To fulfill the vision for the metaverse, Microsoft does not yet have an affordable, consumer-grade virtual reality headset. Microsoft sells an augmented reality headset called HoloLens, but that device overlays digital items over the real world. It isn’t a fully immersive experience and used mostly for business purposes.

Kotick told CNBC’s Becky Quick on “Squawk on the Street” that he made the deal after he realized Microsoft had the technology to help Activision in the growing race to build the metaverse between tech companies. Spencer stated that the two companies began discussing an acquisition late last year. Both companies emphasized Activision’s strength in mobile gaming when announcing the deal. Among the top-grossing and most popular mobile games is Candy Crush, owned by Activision. They discussed the possibility of cross-promoting popular gaming franchises from both companies, such as Halo from Microsoft and World of Warcraft from Activision. (Activision acquired King for $5.9 billion in 2016).

During a conference call Tuesday morning following the announcement of the deal. Nadella said, “Games help people maintain a sense of community and belonging, even when they are apart”. He added that 3 billion people play video games worldwide, pointing to the size of the market Microsoft sees.

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