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 announced by Microsoft on Tuesday, its largest-ever deal and set to be the largest all-cash acquisition ever will increase its power in the booming videogaming market where it takes on leaders 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, has stated that gaming is the most exciting and dynamic category of entertainment on all platforms and will play a key part in the development and expansion of metaverse platforms.
Microsoft is one of the largest companies worldwide, largely due to its corporate software, such as its Azure cloud computing platform, Outlook franchise, and Outlook software. Microsoft is now offering $95 per share, which is a 40% premium over Activision's Friday close.
Activision shares last traded up 26 percent to $82.10 which is a significant discount from the original offer price. This raises concerns that the deal could be caught in the crosshairs of regulators.
Although Microsoft has avoided the scrutiny of Google and Facebook however, this deal, which could 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 said that Microsoft was already a major player in gaming.
A person who is who is familiar with the issue confirmed that Microsoft would pay $3 billion break-fee to if the deal is not approved. This suggests that Microsoft is confident that it will win antitrust approval.
The shares of the tech company fell 1.9 percent in the past quarter.
Activision is a company that makes games such as "Overwatch" or "Candy Crush", is in a weak spot. The deal comes at a critical moment. Before the deal was announced its shares had plunged more than 37% since hitting record heights last year after being hit by allegations of sexual harassment against employees and misconduct by several top managers.
The company is currently addressing those allegations and said on Monday that it has fired or pushed out more than three dozen employees and disciplined another 40 since July. Premium ebooks for premium people
CEO Bobby Kotick, who said Microsoft approached him about a possible buyout, would continue as CEO of Activision following the deal, although he is expected to leave when the deal is completed the deal, a source with knowledge of the plans said.
Microsoft CEO Nadella addressed the company's culture Microsoft during an analyst conference call.
"It's crucial for Activision Blizzard to drive forward in its new commitments to culture," he said, adding "the success of this acquisition will be contingent on it."
'METAVERSE ARMS RACE'
Data analytics firm Newzoo estimates that the gaming industry generated $180.3 billion in revenues in 2021, and expects it to grow to $218.8 billion by 2024.
Microsoft already has a substantial beachhead in the sector as one of the top three console makers. It has been making investments including the acquisition of "Minecraft" maker Mojang Studios and Zenimax in multibillion-dollar deals over the last few years.
It also launched a well-known cloud gaming platform that has more than 25 million users.
Newzoo reports that Microsoft's share of the gaming market was 6.5% by 2020, and Activision would have increased it to 10.7 percent..
Executives highlighted the company's 400,000,000 monthly active players as a major attraction and the role these communities can play within Microsoft's various metaverse games.
Microsoft's Xbox gaming platform may be able to make use of Activision's extensive collection of games that could provide an advantage over Sony's Playstation. Playstation has enjoyed an ongoing stream of exclusive titles for years.
"The likes of Netflix have already stated that they would like to try gaming However, Microsoft has come out swinging with its very generous offer," said Sophie Lund-Yates an equity analyst at Hargreaves Lansdown.
Microsoft's offer is equivalent to 18 times Activision 2021 earnings before interest tax depreciation, amortization, and amortisation (EBITDA). This is in contrast to the 16-times EBITDA valuation of Take-Two Interactive, a "Grand Theft Auto" maker's cash-and-shares Zynga deal. https://www.reuters.com/markets/deals/take-two-acquire-zynga-an-enterprise-value-127-billion-2022-01-10
Refinitiv data shows that the Microsoft-Activision deal is likely to be the largest cash purchase ever, surpassing Bayer's $63.9B offer for Monsanto in 2016 and the $60.4B InBev bid for Anheuser-Busch in 2008.
Nvidia and Microsoft have placed huge bets on the so-called metaverse. The hype surrounding it has gotten more intense since the end of this year when Facebook changed its name to Meta Platforms to reflect its specialization in virtual reality.
"This is a significant acquisition for the consumer side of the business and more importantly, Microsoft acquiring Activision really will start the arms race in the metaverse," David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors, said.
He added that he believes that the deal will be done, but warned that there will be many regulatory eyes watching it.