Microsoft announces record-breaking acquisition of Activision Blizzard (NASDAQ:ATVI), one of the world’s largest video game publishers, for $68.7 billion. The tech giant also mentions that the purchase is aimed at capturing metaverse market pie.
The company thinks that the Activision purchase will provide building blocks for the metaverse.
“With three billion people actively playing games today, and fueled by a new generation steeped in the joys of interactive entertainment, gaming is now the largest and fastest-growing form of entertainment. Today, Microsoft Corp. (Nasdaq: MSFT) announced plans to acquire Activision Blizzard Inc. (Nasdaq: ATVI), a leader in game development and interactive entertainment content publisher. This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.”
The Deal To Shake Gaming Industry
According to Bloomberg, negotiations between Microsoft and Activision Blizzard began after a California agency sued Blizzard for sexism last summer. Apparently, Microsoft saw the publisher’s situation as an opportunity and decided to pay $69 billion for what is probably the most controversial game company in the world.
The fact that Nadella represents a fairly broad definition of the metaverse was already noted last November. At the time, Microsoft’s boss posited that “Minecraft,” “Halo,” and “Flight Simulator” were actually metaverses, meaning anything with a multiplayer mode. Games like Blizzard’s upcoming “Overwatch 2” and the old “World of Warcraft” could easily fit into this rather vague list. It remains to be seen how Microsoft actually envisions the Metaverse of the future in the next few years.
If the transaction becomes successful, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent and Sony. The planned acquisition includes iconic franchises from the Activision, Blizzard and King studios like “Warcraft,” “Diablo,” “Overwatch,” “Call of Duty” and “Candy Crush,” in addition to global eSports activities through Major League Gaming. The company has studios around the world with nearly 10,000 employees.
Mobile Gaming Is a Big Focus
Microsoft sees mobile gaming as the next growth opportunity. It mentioned:
“Mobile is the largest segment in gaming, with nearly 95% of all players globally enjoying games on mobile.”
Activision Blizzard owns the King mobile gaming division, which the US company bought for $6.9 billion in 2016. Mobile gaming has been the biggest contributor to Activision Blizzard’s bottom line for years, and the mobile gaming trend has continued to this day.
Although difficult for gamers to stomach, mobile games like “Candy Crush” and “Bubble Witch Saga” are among the sweet treats. In Germany alone, almost 2.3 billion euros were returned with mobile games in 2021, 500 million euros more than with consoles. According to analytics firm SensorTower, eight games worldwide generated more than $1 billion in sales last year, including “Candy Crush.”
In addition to these brands, Microsoft is also buying King’s mobile experience. With their help, Microsoft could also launch its own brands for cell phones and tablets, which until now has barely taken place on mobile platforms.
“With great teams and cutting-edge technology, Activision Blizzard and Microsoft will enable gamers to experience brands like Halo and Warcraft virtually anywhere,” Microsoft wrote in the announcement. The mobile market is a huge growth opportunity for a company that has traditionally served Xbox and PC.
Through great teams and great technology, Microsoft and Activision Blizzard will empower players to enjoy the most-immersive franchises, like “Halo” and “Warcraft,” virtually anywhere they want. And with games like “Candy Crush,” Activision Blizzard´s mobile business represents a significant presence and opportunity for Microsoft in this fast-growing segment.”
The Activision Blizzard Acquisition To Bolster Microsoft’s Subscription Games Portfolio
The third pillar of the strategy is Microsoft’s Game Pass game subscription. His portfolio was already well strengthened by the acquisition of Bethesda, Activision Blizzard titles would be like a real transfer: “Call of Duty”, “Overwatch”, the next “Diablo 4”, “World of Warcraft” without additional subscription. the subscription upgrade possibilities are immense. Netflix and Spotify have shown how a good subscription service can dramatically transform an established media market. If you get there early, you can win a lot in the long run.
Game Pass, which also includes Electronic Arts games, is already by far the best and most comprehensive gaming subscription. But even in this still young market segment, a duel between Microsoft and Sony is emerging: According to the information, the Playstation manufacturer is considering its own subscription offer. Even for Sony it will be difficult to reach the already huge advantage of Game Pass with its 25 million subscribers.
In-house developments and exclusive titles are also among the biggest selling points in the traditional console sector. Sony had the upper hand here for a long time with series like ‘God of War’, ‘Uncharted’ and ‘The Last of Us’, which was directly reflected in Playstation versus Xbox sales numbers. For several years though, Microsoft has been playing catch up, the acquisition of Activision Blizzard would create at least a tie: the Playstation would no longer be the best console by default because it has the best games.
Paradigm shift for Activision Blizzard
Activision has been struggling to overcome a lot of challenges from a sexual discrimination and harassment lawsuit to employee walkouts, executive resignations, and delays for two of Blizzard’s most eagerly anticipated sequels — Overwatch 2 and Diablo 4. In fact, Activision’s stock had declined nearly 30% over the previous 12 months.
Microsoft acquisition would pave the way for a self-inflicted crisis and change the narrative in one fell swoop. The years-long standoff between the traditional divisions Activision and Blizzard could also be resolved.
Employees can also expect a better management style. Microsoft is one of the companies whose commitment to inclusion in the workplace is really bought, and the environment in the internal studios is considered relatively good.
At Blizzard, on the other hand, systematic sexism and harassment have shaped the workplace atmosphere for years, and have been tolerated and supported by management. Activision Blizzard has taken some blows to the staff in recent months: Blizzard president J. Allen Brack, for example, had to leave the company.
Company boss Bobby Kotick, who was also heavily burdened by the media reports, was able to hold his own. There is much to speculate that he will step down once the acquisition is complete. He points to a lucrative severance package and a way out where he can save face. Kotick allegedly covered up the allegations against the managers and even harassed the employees.
Tough task for antitrust authorities
This is one of the largest deal of the history, if not the largest. For all of this to happen, the acquisition must first be approved by antitrust authorities. According to experts, due to the deal size, market position and sales figures of the two companies, the competition authorities will examine this very closely.
Now a long process awaits Microsoft and Activision Blizzard. In addition to the United States, the antitrust authorities of Brussels, Russia and China, among others, will probably have to give their approval to the takeover bid.
The Proposed Deal
Microsoft announced that it will acquire Activision Blizzard for $95.00 per share, in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash.
Bobby Kotick will continue to serve as CEO of Activision Blizzard, and he and his team will maintain their focus on driving efforts to further strengthen the company’s culture and accelerate business growth. Once the deal closes, the Activision Blizzard business will report to Phil Spencer, CEO, Microsoft Gaming.
Microsoft wants to close the deal in mid-2023; if all goes well, the gaming market will look very different after that.
The transaction has been approved by the boards of directors of both Microsoft and Activision Blizzard.
Mocrosoft revealed in its press release that Goldman Sachs & Co. LLC is serving as financial advisor to the company and Simpson Thacher & Bartlett LLP is serving as legal counsel. Allen & Company LLC is acting as financial advisor to Activision Blizzard and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel.