Microsoft to Acquire Activision Blizzard for $68.7B, Becoming Third Largest Gaming Company

Following a trend of gaming industry deals, Microsoft Corporation (Nasdaq: MSFT) is set to acquire gaming company Activision Blizzard Inc. (Nasdaq: ATVI) in a $68.7 billion cash deal that will accelerate Microsoft’s gaming business, which upon closing will be the third-largest gaming company in the world after Tencent and Sony.

Pursuant to the January 18 deal, Microsoft will acquire Activision Blizzard for $95 per share. As a result, Microsoft will be adding game franchises like Warcraft, Diablo, Overwatch, Call of Duty and Candy Crush as well as eSports activities from Major League Gaming. These are additions to Microsoft’s gaming portfolio; it produces the Xbox video game console and owns franchises like Minecraft and Halo.

According to the filing, Bobby Kotick will continue to serve as Activision Blizzard’s CEO and upon closing, the Activision Blizzard business will report to Microsoft Gaming CEO Phil Spencer. Reports indicate Kotick will depart the company after the deal closes. The company has faced allegations that it failed to combat a culture of sexual harassment, leading to legal action.

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” Microsoft chairman and CEO, Satya Nadella, said in a press release. “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.”

“The combination of Activision Blizzard’s world-class talent and extraordinary franchises with Microsoft’s technology, distribution, access to talent, ambitious vision, and shared commitment to gaming and inclusion will help ensure our continued success in an increasingly competitive industry,” Activision Blizzard CEO, Bobby Kotick, said in a press release.

Gaming is a $200+ billion industry with three billion people playing games, which is expected to grow to 4.5 billion by 2030. Accordingly, the deal will help to expand and grow Microsoft’s gaming in the mobile, PC, console and cloud segments, also helping to provide the foundation for the “building blocks for the metaverse.” As noted in the filings, “Mobile is the largest segment in gaming, with nearly 95% of all players globally enjoying games on mobile.” Reportedly, as a result of this transaction, players will be able to play these games almost anywhere.

Furthermore, Microsoft will also add the Activision Blizzard games into its Game Pass service, which gives users access to a library of games for a monthly fee and currently has more than 25 million subscribers. According to the filings, Activision Blizzard has approximately 400 million monthly active players in 190 countries and three billion-dollar franchises. Consequently, “this acquisition will make Game Pass one of the most compelling and diverse lineups of gaming content in the industry” and Microsoft will “have 30 internal game development studios, along with additional publishing and eSports production capabilities.

This deal is the largest deal Microsoft has had since it acquired LinkedIn in 2016 for $26.2 billion. Moreover, it comes two weeks after Take-Two Interactive announced it would be acquiring Zynga.

The reverse triangular deal is expected to close in fiscal year 2023, pending customary closing conditions and regulatory approval; the deal has already been approved by both boards of directors. Upon consummation, the deal will be accretive to non-GAAP earnings per share.

Microsoft’s legal advisor is Simpson Thacher & Bartlett LLP and its financial advisor is Goldman Sachs & Co. LLC.  Activision Blizzard’s legal advisor is Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates and its financial advisor is Allen & Company.

Prior to the announcement, Microsoft’s stock was valued at $310.20 on January 14. When the deal was announced on January 18, the stock was valued at $302.65 and a week later on January 24, it was valued at $296.37. Meanwhile, before the announcement on January 14, Activision Blizzard’s stock was at $65.39 and on January 18, when the deal was announced, the stock was valued at $82.31 and on January 24, stock closed at $79.97.