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January 21, 2022

Microsoft buys Activision in $68.7 billion all-cash deal

Microsoft announced Tuesday that it will buy video game giant Activision Blizzard in a $68.7 billion cash deal.

The price means Microsoft will pay $95 per share for Activision. Shares of Activision ended the day higher than 25%, closing at $82.31 a share on Tuesday. Shares of Microsoft closed more than 2% lower. This would be Microsoft’s largest acquisition to date, followed by LinkedIn’s 2016 purchase for $26.2 billion.

Known for popular games such as Call of Duty and Tony Hawk’s Pro Skater, Activision has been embroiled in controversy in recent months after reports of sexual misconduct and harassment among the company’s executives. On Monday, Activision said it had fired dozens of executives after an investigation.

Under the deal, Activision CEO Bobby Kotick, who has faced calls to step down due to cultural issues within his company, will remain CEO during the transition. Microsoft said Activision as a company will report to Microsoft’s Xbox boss Phil Spencer after the deal closes, implying Kotick could leave after the transition. The Wall Street Journal reported Tuesday afternoon, Kotick is expected to resign after the deal closes.

Microsoft said it expects to close the deal in fiscal 2023. However, US regulators have indicated that they will be much more aggressive when evaluating major acquisitions, especially in the tech industry, so there’s a chance the deal could die under government review.

Microsoft has become more aggressive with gaming in recent years. It bought Minecraft creator Mojang for $2.5 billion in 2014. And last year, Microsoft completed a $7.5 billion acquisition of game maker Bethesda.

The deal also capitalizes on a long-term vision for Microsoft as it competes with Meta (formerly Facebook) to build technologies to create a virtual world called the metaverse. In fact, Microsoft CEO Satya Nadella was the first Big Tech CEO to publicly acknowledge the value of the metaverse, months before Meta CEO Mark Zuckerberg. Today, virtual worlds are dominated by gaming, but the hope is that they will expand to cater to other demographics and replace many traditional social networking activities online.

“As we reflect on our vision of what a metaverse could be, we believe there will be no single, centralized metaverse,” Nadella said during a phone call Tuesday morning discussing the deal. That means Nadella sees an opportunity for many software makers to create many different virtual worlds in the future, rather than one dominant company controlling most of the activity.

Still, Microsoft doesn’t yet have an affordable consumer-grade virtual reality headset that would be needed to fulfill its vision for the metaverse. Microsoft does sell an augmented reality headset called HoloLens, but that device paints digital items on top of the real world. It is not a fully immersive experience and is mostly used for business applications.

In an interview with CNBC’s Becky Quick on “Squawk on the Street,” Kotick said the deal came through after realizing Microsoft had the technology to push Activision forward in the nascent competition among tech companies to build the metaverse. In the same interview, Spencer said talks about an acquisition between the two companies began at the end of last year.

That said, both companies focused on the present when announcing the deal, culminating in Activision’s strength in mobile gaming. For example, Activision owns Candy Crush, one of the most popular and lucrative mobile games out there. (Activision bought Candy Crush’s publisher King for $5.9 billion in 2016.) They also highlighted the opportunity to promote popular game franchises from both companies, such as Microsoft’s Halo and Activision’s World of Warcraft.

“The last two years in particular have shown how crucial games are in helping people maintain a sense of community and belonging even when they’re apart,” Nadella said during a conference call Tuesday morning after announcing the deal. He added that 3 billion people around the world play video games, hinting at the overall market he sees Microsoft moving into.

source: cnbc

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