UPDATED 13:09 EDT / JANUARY 18 2022

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In record $68.7B acquisition, Microsoft to buy videogame maker Activision Blizzard

Microsoft Corp. today announced it has inked an agreement to acquire Activision Blizzard Inc., one of the leading players in the videogame market, for $68.7 billion.

The deal’s price tag could make it the largest acquisition in the tech industry to date upon closing. Currently, the highest-valued tech acquisition on record is Dell Technologies Inc.’s purchase of data center storage equipment maker EMC for $67 billion, which was completed in 2016.

“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 Microsoft Chief Executive Officer Satya Nadella. “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.”

Microsoft’s $68.7 billion offer reflects the prominent role that Activision Blizzard plays in the videogame market. The Santa Monica, California-based company closed its last fiscal year with sales of more than $8 billion. Activision Blizzard generates its revenue from a series of popular videogames with more than 400 million active monthly users in 190 countries.

Microsoft, which is best known as a maker of operating system software and cloud services, likewise has a significant videogame business. The business is based in part on assets that the company obtained through the $7.5 billion acquisition of ZeniMax Media Inc. last year. Moreover, Microsoft also competes in the hardware side of the market with the popular Xbox videogame console. 

After completing the Activision Blizzard acquisition, Microsoft expects that its videogame business will be the third-largest in the industry by revenue.

“For more than 30 years our incredibly talented teams have created some of the most successful games,” said Activision Blizzard CEO Bobby 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.”

Microsoft’s plan for realizing a return on its $68.7 billion investment in the acquisition consists of several elements. To start, Microsoft intends to make Activision Blizzard’s videogames available through its Game Pass series of subscription services.

The Game Pass portfolio enables users to access a rotating catalog of videogames for a fixed monthly fee. Microsoft disclosed today that the service series has more than 25 million users. 

In parallel, Microsoft will use the acquisition to expand its presence in the lucrative mobile game segment. The mobile game segment is at the center of another multibillion-dollar acquisition announced recently in the videogame market. A few days ago, Take-Two Interactive Software Inc. announced plans to acquire mobile game maker Zynga Inc. in a $12.7 billion transaction. 

The reason why this market has drawn so much interest from major industry players is its growth potential. When Take-Two announced its plans to purchase Zynga, the company detailed that the mobile game segment is believed to be the fastest-growing segment of the videogame industry. That’s with the mobile segment generating estimated bookings of $136 billion last year. 

Like Take-Two, Microsoft is hoping to grow its mobile game business. “Activision Blizzard’s mobile business represents a significant presence and opportunity for Microsoft in this fast-growing segment,” the company stated in its acquisition announcement today.

Microsoft’s $68.7 billion acquisition offer amounts to $95 per Activision Blizzard share. The deal is expected to close in Microsoft’s 2023 fiscal year, with the company expecting it to be accretive to adjusted earnings per share upon close.

Microsoft is buying Activision Blizzard at a time when tech acquisitions are becoming a bigger focus for regulators. Today, against the backdrop of the acquisition’s announcement, the U.S. Federal Trade Commission and the Department of Justice reportedly launched a process to rewrite guidelines for company mergers. Earlier, on Friday, Bloomberg reported that the FTC is investigating Meta’s acquisition of virtual reality headset maker Oculus VR.

Meanwhile, Activision Blizzard remains mired in a sexual harassment scandal. Recently 37 employees left the company after a months-long sexual harassment probe, and 44 more employees were disciplined. In November, Kotick was accused of abusive behavior as well, prompting 1,500 employees to sign a petition asking him to be removed.

Kotick remained in the top job. But despite Microsoft saying today that he will “continue to serve as CEO of Activision Blizzard,” the Wall Street Journal quoted people familiar with the situation saying that he’s expected to leave as CEO after the deal closes.

Photo: Microsoft

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