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 that was announced by Microsoft on Tuesday, its largest-ever deal and set to be the largest all-cash acquisition on record will boost 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.
Satya Nadella, Microsoft Chief Executive, stated that gaming is the most exciting and dynamic category of entertainment across all platforms and would play a major role in the growth and development of metaverse platforms.
Microsoft, one of the largest companies in world largely thanks to corporate software such as its Azure cloud computing platform and Outlook franchise It is offering $95 per share - at a premium of 45% to Activision's closing price on Friday.
Activision's shares last traded up 26% at $82.10, still a steep discount to the offer price and a sign that the deal could be entangled in regulators' crosshairs.
Although Microsoft has escaped the scrutiny of Google and Facebook the deal, which will make Microsoft the third-largest gaming company in the world it will bring the Xbox maker to the notice of lawmakers, said Andre Barlow, of Doyle, Barlow & Mazard PLLC.
He claimed that Microsoft was already a major player in gaming.
A person who was aware of the situation stated that Microsoft would pay a $3B break-fee if the deal is not approved. Gaming suggests that Microsoft is confident that it will win antitrust approval.
The tech company's shares fell 1.9 percent in the most recent quarter.
Activision, which makes games such as "Overwatch" or "Candy Crush", is in a bind. The deal is coming at a crucial moment. Its shares fell more than 37% in the year prior to when the announcement. The shares of the company had dropped more than 37% since the record high set last year. This was due to allegations of sexual harassment and misconduct by top managers.
The company is still looking into the allegations. It stated Monday that it had dismissed or forced to eject more than three dozen employees since the beginning of July and that it had disciplined 40 other employees.
CEO Bobby Kotick, who said Microsoft approached him about the possibility of a buyout, will remain CEO of Activision after the purchase, although he is expected to step down after it closes, a source familiar with the plans said.
Microsoft chief Nadella spoke about the culture of the company during an interview with analysts on a conference call.
"It's vital for Activision Blizzard to drive forward on its renewed cultural commitments," he said, adding "the success of this acquisition will be contingent on it."
'METAVERSE RACE FOR ARMS'
Data analytics firm Newzoo estimates the global gaming market generated $180.3 billion in revenue in 2021. The company expects this to increase to $218.8 billion by 2024.
Microsoft already has a major beachhead in the sector as one of the big three console makers. Microsoft has been investing in its business such as buying "Minecraft" maker Mojang Studios and Zenimax in multibillion dollar deals in recent years.
It also launched a popular cloud gaming platform that has more than 25 million users.
According to Newzoo the gaming market of Microsoft's share was 6.5 percent in 2020, and the addition of Activision would have increased it to 10.7 percent..
Executives spoke up Activision's 400,000,000 monthly active users as a major attraction and the role that these communities could play in Microsoft's metaverse games.
Microsoft's Xbox gaming platform may benefit of Activision's extensive library of games that could provide an advantage over Sony's Playstation. Playstation has enjoyed a steady stream of exclusive games for years.
"The likes Netflix have already announced that they'd like to venture into gaming but Microsoft has come out swinging today with a rather generous offer," said Sophie LundYates an equity analyst at Hargreaves Lansdown.
Microsoft's offer is equivalent to 18 times Activision 2021's earnings before interest tax depreciation, amortization and amortisation (EBITDA). This is in contrast to the 16 times EBITDA estimation of "Grand Theft Auto" maker Take-Two Interactive's share-and-cash deal with Zynga last week. https://www.reuters.com/markets/deals/take-two-acquire-zynga-an-enterprise-value-127-billion-2022-01-10
According to Refinitiv data the Microsoft-Activision deal will be the biggest all-cash acquisition in history, beating Bayer's $63.9 billion offer for Monsanto in 2016 and the $60.4 billion that InBev offered for Anheuser-Busch in 2008.
Tech companies from Microsoft to Nvidia have made big bets on the metaverse, with the buzz about it escalating at the end of last year, after Facebook changed its name to 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 importantly, Microsoft acquiring Activision really starts the arms race in the metaverse," David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors said.
"We believe the deal will be concluded," he said, but cautioned: "This will get a lot of attention from a regulatory point of view.
