Explained: Through Activision buy, Microsoft’s bet on the future

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Microsoft Corp announced on Tuesday (January 18) that it would buy Activision Blizzard, the maker of superhit video games Call of Duty and Candy Crush, for $68.7 billion in cash.

Microsoft’s offer of $95 per share is at a premium of 45% to Activision’s Friday close, Reuters reported.

This is the largest deal in the sector, and makes Microsoft, maker of the Xbox gaming console, the third-largest gaming company by revenue after Tencent and Sony, the company said.

Betting on the future

The acquisition underlines the importance Microsoft attaches to video games in the coming digital world dominated by virtual and augmented reality.

The deal is expected to boost Microsoft against Facebook, the biggest player in the metaverse. By adding Activision, Microsoft is betting that people would want to play major games on not just phones, consoles, or computers, but also in VR.

“Our vision of the metaverse is based on intersecting global communities rooted in strong franchises,” Phil Spencer, Microsoft’s vice president of gaming, was quoted as saying by The New York Times.

“A big part of that is the fact that mobile is the biggest category of gaming, and it’s an area where we have not had a major presence before,” Spencer said.

Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard’s games characters in this illustration. (Reuters: Dado Ruvic)

The biggest deal

Microsoft, a business software and cloud computing giant, sits on a huge cash pile of more than $130 billion. It has in the past looked at buying the popular video-sharing service TikTok and the instant messaging app Discord.

Activision was a vulnerable target — the company has been hit by controversy in recent months over an alleged “fratboy workplace culture”, and was sued in July last year by California’s Department of Fair Employment and Housing on charges of sexual harassment, discrimination, and misconduct. Shares of Activision had fallen 27 per cent since the lawsuit was filed.

At the same time, the deal is being seen as a triumph for Activision chief executive Bobby Kotick who has wangled a a premium of about 45 per cent above the company’s stock price.

The deal is the biggest the gaming industry has ever seen, bigger than the recent buy, for $11 billion, of Zynga by Take-Two Interactive, the maker of Grand Theft Auto. The industry has seen profits zoom during the Covid-19 pandemic, and a consolidation is underway. Electronic Arts and Take-Two fought for the British racing game company Codemasters in 2021, and Microsoft bought Zenimax Media in 2020 for $7.5 billion, The NYT report said.

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