Microsoft to swallow Activision in $69 billion metaverse bet


activision

(Mike Blake, Reuters)

Microsoft Corp (MSFT.O) is buying “Call of Duty” maker Activision Blizzard (ATVI.O) for $68.7 billion in the biggest deal in gaming industry history, as global tech giants bet on a virtual future.

The deal announced by Microsoft on Tuesday, the largest in its history and set to be the largest cash acquisition on record, will bolster its power in the burgeoning video game market, where it faces leaders Tencent (0700.HK) and Sony. (6758.T).

It also represents the US multinational’s commitment to the “metaverse”, virtual online worlds where people can work, play and socialize, as many of its main competitors are already doing.

“Gaming is the most dynamic and exciting category of entertainment on all platforms today and will play a key role in the development of metaverse platforms,” ​​said Microsoft CEO Satya Nadella.

Microsoft, one of the world’s biggest companies largely thanks to corporate software like its Azure cloud computing platform and Outlook franchise, is offering $95 a share, a 45% premium as of Friday’s close. Activision.

Activision shares rose 26% to $82.10, still a deep discount from the offer price, reflecting concerns that the deal could be caught in the crosshairs of regulators.

Until now, Microsoft has avoided the kind of scrutiny that Google and Facebook face, but this deal, which would make it the world’s third-largest gaming company, will put the Xbox maker on lawmakers’ radar, Andre Barlow said. of the law firm Doyle, Barlow & Mazard PLC.

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

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

Shares of the tech major fell 1.9% for the last time.

The deal comes at a time of weakness for Activision, maker of games like “Overwatch” and “Candy Crush.” Before the deal was announced, its shares had plunged more than 37% since hitting an all-time high last year, hit by allegations of sexual harassment of employees and misconduct by several top managers.

The company is still addressing those allegations and said Monday that it had fired or furloughed more than three dozen employees and disciplined 40 others since July.

CEO Bobby Kotick, who said he was approached by Microsoft about a possible purchase, would continue as CEO of Activision after the deal, though he is expected to leave after it closes, a source familiar with the plans said.

In a conference call with analysts, Microsoft boss Nadella did not address the scandal directly but spoke about the importance of culture at the company.

“It is critical that Activision Blizzard move forward with its renewed cultural commitments,” he said, adding that “the success of this acquisition will depend on it.”

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

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

It also launched a popular cloud gaming service, which has more than 25 million subscribers.

According to Newzoo, Microsoft’s gaming market share was 6.5% in 2020 and if Activision had been added, it would have taken it to 10.7%.

Executives spoke of Activision’s 400 million monthly active users as one of the main attractions of the deal and how vital these communities could play in the various games in Microsoft’s metaverse.

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

“Netflix has already said they’d like to get into gaming, but Microsoft has come out on top with today’s fairly generous offer,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

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

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

Tech companies from Microsoft to Nvidia have made big bets on the so-called metaverse, and the buzz intensified late last year after Facebook rebranded itself as Meta Platforms to reflect its focus on its virtual reality business.

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

“We think the deal will get done,” he said, but cautioned: “This is going to get a lot of scrutiny from a regulatory standpoint.”

This article is copy and paste from Reuters Check the original article here

Fountain: Reuters




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