In its largest purchase ever, Microsoft will pay $95 a share in cash to add Activision’s stable of popular titles, helping the software giant expand its own offerings for the Xbox console and push it into the fast-growing markets for mobile gaming and the metaverse. The deal, which would make Microsoft the world’s No. 3 gaming company, also fits with Chief Executive Officer
Activision, which has a long history with Microsoft’s Xbox, will also help the software giant better compete with rival
“Gaming has been key to Microsoft since our earliest days as a company,” Nadella said in a note to employees. “Today, it’s the largest and fastest-growing form of entertainment, and as the digital and physical worlds come together, it will play a critical role in the development of metaverse platforms.”
Taking on Activision also introduces a whole host of legal and potential regulatory problems to Microsoft. Activision has been shrouded in
The deal will also likely face tough regulatory scrutiny in the U.S., where big technology companies are being probed by regulators for their reach and influence. China, which has been sparring with the U.S. already over technology issues, will also likely review the merger.
Kotick, who has led Activision for three decades, came
In an interview, Kotick said the deal has nothing to do with the controversy surrounding Activision or calls for him to step down and that Spencer reached out to him last year. A person familiar with the discussions, who was not authorized to speak publicly, said Microsoft looked at Activision’s situation, given all the negative attention and pressure on Kotick, and wondered if the beleaguered CEO would be willing to do a deal.
Kotick initially didn’t want to sell, according to another person familiar with the talks, and also put the word out to see if any other company would outbid Microsoft. But at that point, Kotick had little leverage with his
Microsoft’s bid is a 45% premium on Activision’s closing price Friday. However, it’s a bargain compared with the stock’s performance in the first half of last year, before the sexual bias lawsuit plunged the company into crisis. The shares hit a high of more than $100 apiece in February and then lost nearly half their value by the end of the year. Microsoft shares fell about 2% Tuesday afternoon in New York.
The scandal has taken a toll on a company already struggling to adapt to the end of a pandemic-fueled video game boom. In November, Activision delayed two of its most anticipated games and gave a sales forecast for the fourth quarter that fell short of Wall Street’s expectations.
Spencer said last November that Microsoft was
“We also recognize that after the close, we will have significant work to do in order to continue to build a culture where everyone can do their best work,” Nadella said on a call with investors on Tuesday.
Founded in 1979, Activision is home to some of the most popular game franchises in the world, including Candy Crush, Guitar Hero, Skylanders, Destiny, Crash Bandicoot and the Tony Hawk skateboarding titles. Its Call of Duty franchise is particularly notable for its lasting appeal, opening week sales and, increasingly, its reach in Asia. The mobile edition of the game launched in China in December 2020, quickly hitting the top of the download charts. It brought in tens of millions of new fans, “with player investment in the first quarter on par with the rest of the world combined,” the company said in May.
The franchise is arguably Activision Blizzard’s most important business. In 2020, the company’s Activision segment -- nearly all of which is Call of Duty -- accounted for 55% of the company’s operating profit.
But some of Activision’s games
“Acquiring Activision will help jump-start Microsoft’s broader gaming endeavors and ultimately its move into the metaverse with gaming the first monetization piece of the metaverse,”
Microsoft plans to keep making some of Activision’s games for PlayStation consoles but will also keep some content exclusive to Xbox, said a person familiar with the company’s thinking.
“I’ll just say to players out there who are playing Activision Blizzard games on Sony’s platform: It’s not our intent to pull communities away from that platform and we remained committed to that,” Spencer said in an interview.
Microsoft has made several acquisitions recently to bolster its roster of games studios. In 2020, it agreed to acquire ZeniMax Media Inc., home to The Elder Scrolls and Doom publisher Bethesda Softworks, for $7.5 billion. At the time, this was Microsoft’s biggest video game purchase ever. Microsoft also spent $2.5 billion in 2014 to to purchase Mojang, the maker of Minecraft, a popular virtual-world-building game that is seen as a path to the company’s future metaverse ambitions. Microsoft said the Activision deal will vault it to just behind China’s
Driving Microsoft’s ambition is its Game Pass subscription service, which gives members access to all of its first-party games -- those from the studios it owns -- for no extra charge, and on the day of their commercial release. Recently, it’s added titles from other publishers, such as
Microsoft is also banking on the rise in mobile gaming, the fastest-growing part of the industry and one of the software giant’s weak spots. Earlier this month, Take-Two Interactive Software Inc. agreed to buy mobile game maker Zynga Inc. in a deal valued at
Microsoft said its deal for Activision will allow gamers to enjoy hit titles like Halo and Warcraft “virtually anywhere they want.” Activision’s mobile business represents a “significant presence and opportunity” for Microsoft, the company said.
--With assistance from
To contact the editors responsible for this story:
© 2022 Bloomberg L.P. All rights reserved. Used with permission.