Microsoft agrees $69bn Activision acquisition

March 2022 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

March 2022 Issue

Microsoft Corp has announced a $68.7bn all-cash deal to acquire Activision Blizzard in the biggest gaming industry deal in history. The transaction will see Microsoft become the world’s third-biggest gaming company by revenue behind China’s Tencent and Japan’s Sony.

Under the terms of the deal, Microsoft will pay $95 per share – a 45 percent premium to Activision’s closing price on Friday 14 January, the last day of trading before the deal was announced. The transaction is subject to customary closing conditions, regulatory review and Activision Blizzard’s shareholder approval. It is expected to close in fiscal year 2023 and will be accretive to non-generally accepted accounting principles (GAAP) earnings per share upon close. The transaction has been approved by the boards of directors of both Microsoft and Activision Blizzard.

The deal would be the largest all-cash acquisition on record, surpassing Dell’s $67bn purchase of EMC in 2016 as the biggest technology deal in history. It would far exceed Microsoft’s next-biggest deal: its $26bn acquisition of LinkedIn in 2016.

Throughout the coronavirus (COVID-19) pandemic, gaming has enjoyed a dealmaking boom. In January, Take Two Interactive acquired Zynga in a $12.7bn deal, creating a global console and mobile gaming giant. Electronic Arts and Take-Two fought for British racing game company Codemasters in 2021, and Microsoft bought Zenimax Media in 2020 for $7.5bn.

As a result of the Activision deal, Microsoft will have control over several blockbuster gaming franchises, such as Call of Duty, Diablo, Starcraft, Candy Crush and World of Warcraft, in addition to global esports activities through Major League Gaming. The company has studios around the world with nearly 10,000 employees.

Under the terms of the deal, Bobby Kotick will continue to serve as chief executive of Activision Blizzard, and he and his team will maintain their focus on driving efforts to further strengthen the company’s culture and accelerate business growth. Once the deal closes, the Activision Blizzard business will report to Phil Spencer, chief executive of Microsoft Gaming.

“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,” said Satya Nadella, chairman and chief executive of Microsoft. “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.”

“Players everywhere love Activision Blizzard games, and we believe the creative teams have their best work in front of them,” said Mr Spencer. “Together we will build a future where people can play the games they want, virtually anywhere they want.”

“For more than 30 years our incredibly talented teams have created some of the most successful games,” said Mr Kotick. “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.”

Arguably, Activision became a vulnerable target after the company was hit by controversy over allegations of misconduct. Its internal culture has been called into question and Activision was sued in July 2020 by California’s Department of Fair Employment and Housing on charges of sexual harassment, discrimination and misconduct. The suit alleged there was a “pervasive ‘frat boy’ culture” at the company and discrimination against women in pay and promotion. The suit prompted a walkout by company employees who demanded that the company address the problem.

Shares of Activision fell significantly after the lawsuit was filed. In October 2021, Activision announced it was putting $250m toward hiring more women, people who identify as nonbinary and those from “underrepresented communities”. The company also announced that it was waiving mandatory arbitration of sexual harassment and discrimination claims and would adopt a zero-tolerance harassment policy in which those who were found to have harassed employees or retaliated against those who reported discrimination would be fired, rather than possibly receiving a written warning or other disciplinary action first. Microsoft announced its support for these measures and pledged to create cultural change within Activision Blizzard going forward.

Richard Summerfield