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Activision Blizzard shares were surging following Microsoft ‘s announcement that it would acquire the gaming company in a nearly $70 billion deal.
Microsoft (ticker: MSFT ) will acquire Activision Blizzard ( ATVI ) for $95 a share in an all-cash transaction valued at $68.7 billion, including Activision Blizzard’s net cash. The acquisition is Microsoft’s largest transaction ever.
“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, Microsoft chairman and CEO, in a press release Tuesday.
Activision Blizzard owns popular gaming franchises such as “World of Warcraft,” “Diablo,” “Call of Duty,” and “Candy Crush.”
The deal accelerates Microsoft’s growth in the gaming business across mobile, PC, console, and cloud gaming, making it the third-largest gaming company by revenue behind Tencent Holdings ( TCEHY ) and Sony ( SONY ), the company said. “We believe that gaming is one of the key ‘next gen’ growth drivers for Microsoft and adding ATVI catapults Microsoft’s gaming strategy to the front of the pack in terms of both having the requisite cloud infrastructure to support new gaming paradigms,” wrote Evercore ISI analyst Kirk Materne in a research note.
Microsoft plans to launch Activision Blizzard games into its Game Pass subscription. Game Pass currently has more than 25 million subscribers, and the company hopes that Activision Blizzard’s nearly 400 million monthly active players will add to the subscriber count.
“For the most part, this is a metaverse play, but I don’t think that MSFT would discount the collateral damage to Sony regarding Xbox potentially having all the rights to the Call of Duty franchise – one of the few holy grails in video gaming franchises,” said David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors. Current Activision CEO Bobby Kotick will remain CEO of the company, and once the deal closes, the business will report to Phil Spencer, CEO of Microsoft Gaming. Kotick is expected to leave the company after the deal closes, people familiar with the matter told The Wall Street Journal. The longtime CEO has faced intense pressure to step down since the Journal reported that Kotick had failed to inform the board of directors about some misconduct reports, including instances of alleged rape at Activision.
The acquisition is subject to closing conditions and regulatory and shareholder approval, and is expected to close in fiscal 2023, the company said. While there may be some regulatory hurdles to clear given the size of the acquisition, Dan Ives of Wedbush expects the deal to ultimately close as Microsoft isn’t under the same scrutiny as some of its tech rivals. Ives said the deal is the largest merger and acquisition deal in tech history.
“Extending our horizon a bit, this transaction will make our approach to the consumer metaverse even stronger,” Spencer said in a call with investors on Tuesday. “That’s because our vision of the metaverse is based on intersecting global communities rooted in strong franchises. A big part of that is the fact that mobile is the biggest category of gaming, and it’s an area where we’ve not had a major presence before.”
Activision Blizzard stock was up 25.4% Tuesday to $81.01. Shares of Microsoft were down 1.9% to $304.20. Gaming companies Electronic Arts (ticker: EA) and Take-Two Interactive
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