Microsoft To Gobble Up Activision In 69 Billion Metaverse Bet
By Subrat Patnaik and Supantha Mukherjee
Jan 18 (Reuters) - Microsoft Corp is buying "Call of Duty" maker Activision Blizzard for $68.7 billion in the biggest https://www.reuters.com/markets/deals/biggest-deals-consolidating-videogame-market-2022-01-10 gaming industry deal in history as global technology giants stake their claims to a virtual future.
The deal made by Microsoft on Tuesday, the company's biggest ever and set to be the biggest cash acquisition ever will increase its power in the booming videogaming market in which it faces off against the top players Tencent and Sony.
It also represents the American multinational's bet on the "metaverse," virtual online worlds where people can work, play and socialize, as many of its biggest competitors are already doing https://www.reuters.com/technology/whos-building-metaverse-2021-11-01.
"Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play an important role in the development of metaverse platforms," Microsoft Chief Executive Satya Nadella said.
Microsoft is one of the largest companies in the world, largely due to its corporate software like its Azure cloud computing platform and Outlook franchise It is offering the price of $95 per share. This is a 45% premium to Activision's Friday close.
Activision's shares are up 26% to $82.10 which is still a significant discount from the offer price, reflecting concerns the deal could be entangled in the crosshairs of regulators.
Microsoft has largely escaped the kind of scrutiny imposed by Google and Facebook but this deal, that would make it the world's third largest gaming company will put the Xbox maker on lawmakers' radars, said Andre Barlow of the law firm Doyle, Barlow & Mazard PLLC.
He said that Microsoft was already a major player in gaming.
A source who was aware of the situation confirmed that Microsoft would pay $3 billion break-fee if the deal isn't approved. This suggests that Microsoft is confident of winning antitrust approval.
The tech giant's shares fell last week by 1.9%.
Activision is a company that makes games like "Overwatch" or "Candy Crush", is in a weak spot. The deal is coming at a crucial time. Prior to Just another wordpress site of the company had plummeted more than 37% after reaching an all-time high in the year prior, hit by allegations of sexual harassment of employees as well as misconduct by a few top managers.
The company is still looking into these allegations. The company announced Monday that it had dismissed or pushed away more than three dozen employees since July , and that it had disciplined 40 others.
CEO Bobby Kotick, who said Microsoft approached him about the possibility of a buyout, will remain CEO of Activision following the deal, although he is expected to leave after it closes, a source familiar with the plans said.
Microsoft chief Nadella spoke about the culture of Microsoft during a conference call with analysts.
"It's critical for Activision Blizzard to drive forward on its renewed cultural commitments," he said, adding that "the success of this acquisition will be contingent on it."
"METAVERSE RACE FORARMS"
Data analytics firm Newzoo estimates that the global gaming market generated $180.3 billion in revenues in 2021. It expects that to grow to $218.8 billion by 2024.
Microsoft already has a major beachhead in the sector as one of the biggest three console makers. Microsoft has made investments including buying "Minecraft" maker Mojang Studios and Zenimax in multibillion dollar deals in recent years.
It also launched a popular cloud gaming service, which has more than 25 million users.
Newzoo reports that Microsoft's gaming market share was 6.5 percent by 2020, and Activision would have boosted it to 10.7%.
Executives highlighted Activision's 400,000,000 monthly active users as a major draw, and the role that these communities could play in Microsoft's many metaverse games.
The games from Activision's library could give Microsoft's Xbox gaming platform an advantage over Sony's Playstation that has enjoyed an uninterrupted stream of exclusive games.
"The likes of Netflix have already stated they would like to venture into gaming however Microsoft has come out swinging today with today's rather generous offering," said Sophie LundYates an equity analyst at Hargreaves Lansdown.
Microsoft's offer is equivalent to 18 times the value of Activision's 2021 profits before interest, tax depreciation and amortization (EBITDA). This compares to the 16-times EBITDA valuation of Take-Two Interactive, a "Grand Theft Auto" maker's share-and-cash Zynga deal. https://www.reuters.com/markets/deals/take-two-acquire-zynga-an-enterprise-value-127-billion-2022-01-10
Refinitiv data indicates that the Microsoft-Activision acquisition will be the biggest cash acquisition ever that will surpass Bayer's $63.9B offer for Monsanto in 2016 as well as the $60.4B InBev bid for Anheuser-Busch in 2008.
Tech companies from Microsoft to Nvidia have placed big bets on what they call the metaverse, with the buzz around it intensifying at the end of last year, after Facebook renamed itself as Meta Platforms to reflect its focus on its virtual reality business.
"This is a significant transaction for the consumer aspect of the business. And more important, Microsoft acquiring Activision really begins the metaverse arms race," David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors said.
He added that he believes that the deal will be completed but warned that there will be a lot of regulatory scrutiny on it.
