Microsoft to Gobble Activision in $69 Billion Metaverse Bet

  • Biggest deal in the gaming industry and cash purchase
  • Microsoft would become the world number 3 in video games
  • Offers a 45% bounty for the maker of “Call of Duty”

Jan 18 (Reuters) – Microsoft Corp (MSFT.O) is buying ‘Call of Duty’ maker Activision Blizzard (ATVI.O) for $68.7 billion in the game industry’s biggest deal ever. history as global tech giants claim a virtual future.

Microsoft’s deal announced on Tuesday, its biggest ever and expected to be the largest all-cash acquisition ever, will bolster its firepower in the booming video game market where it takes on leaders Tencent (0700. HK) and Sony (6758.T).

It also represents the American multinational’s bet on the “metaverse”, online virtual worlds where people can work, play and socialize, as many of its biggest competitors already do.

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“Gaming is the fastest growing and most exciting entertainment category on any platform today and will play a key role in the development of metaverse platforms,” ​​said Microsoft Chief Executive Satya Nadella.

Microsoft, one of the largest companies in the world, thanks in large part to enterprise software such as its Azure cloud computing platform and its Outlook franchise, is offering $95 per share, a premium of 45% per share. report at Activision’s close on Friday.

Activision shares were last up 26% at $82.10, still a steep discount to the offer price, reflecting fears the deal could remain stuck in regulators’ crosshairs.

Microsoft has so far avoided the kind of scrutiny facing Google and Facebook, but the deal, which would make it the world’s third-largest games company, will put the Xbox maker on lawmakers’ radars, Andre said. Barlow of the law firm Doyle, Barlow & Mazard SARL.

“Microsoft is already big in gaming,” he said.

However, a source familiar with the matter said Microsoft would pay a $3 billion severance fee if the deal falls through, suggesting it is confident of securing antitrust approval.

Shares of the tech major were last down 1.9%.

The deal comes at a time of weakness for Activision, maker of games such as “Overwatch” and “Candy Crush.” Before the deal was announced, its shares had fallen more than 37% since hitting a record high last year, hit by allegations of sexual harassment of employees and misconduct by several senior executives. .

The company is still responding to the allegations and said Monday it has fired or expelled more than three dozen employees and disciplined 40 others since July.

CEO Bobby Kotick, who said Microsoft approached him about a possible takeover, would continue as CEO of Activision after the deal, although he is expected to leave after it closes, a source close to says plans.

In a conference call with analysts, Microsoft boss Nadella didn’t directly address the scandal, but spoke about the importance of culture in the company.

Gamers play Call of Duty: Black Ops 4 at Paris Games Week (PGW), a video game trade show in Paris, France, October 25, 2018. REUTERS/Benoit Tessier

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“It is essential for Activision Blizzard to continue its renewed cultural commitments,” he said, adding that “the success of this acquisition will depend on it.”

“METAVERSE ARMS RACE”

Data analytics firm Newzoo estimates that the global gaming market generated $180.3 billion in revenue in 2021 and expects that figure to rise to $218.8 billion by 2024.

Microsoft already has a significant foothold in the industry as one of the big three console makers. It has made investments, including buying “Minecraft” maker Mojang Studios and Zenimax in multi-billion dollar deals in recent years.

He also launched a popular cloud gaming service, which has over 25 million subscribers.

According to Newzoo, Microsoft’s gaming market share was 6.5% in 2020 and the addition of Activision would have increased it to 10.7%.

Executives cited Activision’s 400 million monthly active users as one of the key attractions of the deal and the importance these communities could play in Microsoft’s various metaverse games.

Activision’s library of games could give Microsoft’s Xbox gaming platform an edge over Sony’s Playstation, which has enjoyed a more steady stream of exclusive games for years.

“The likes of Netflix have already said they’d like to make a foray into gaming themselves, but Microsoft made today’s rather generous offer,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown. .

Microsoft’s offer is equivalent to 18 times earnings before interest, taxes, depreciation, and amortization (EBITDA) of Activision in 2021. This compares to the 16 times EBITDA valuation of the cash and stock deal of the “Grand Theft Auto” maker Take-Two Interactive (TTWO.O) for Zynga last week.

According to data from Refinitiv, the Microsoft-Activision deal would be the largest all-cash acquisition on record, surpassing Bayer’s $63.9 billion offer for Monsanto in 2016 and the $60.4 billion that InBev proposed for Anheuser-Busch in 2008.

Tech companies from Microsoft to Nvidia have placed big bets on the so-called Metaverse, with buzz around it intensifying late last year after Facebook renamed itself Meta Platforms to reflect its focus on its business. of virtual reality.

“This is an important deal for the consumer side of the business and, more importantly, Microsoft’s acquisition of Activision really kicks off the metaverse’s arms race,” said David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors.

“We believe the deal will close,” he said, but warned, “It will attract a lot of attention from a regulatory standpoint.”

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Reporting by Subrat Patnaik and Supantha Mukherjee; Additional reporting by Ankur Banerjee, Eva Mathews and Uday Sampath in Bengaluru, Kenneth Li, Krystal Hu and Greg Roumeliotis in New York, Diane Bartz in Washington; Written by Pravin Char; Editing by Carmel Crimmins, Mark Potter and Lisa Shumaker

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