Microsoft to Buy Activision Blizzard for Nearly $70 Billion

Seattle – Microsoft plans to buy the powerful but troubled video game company Activision Blizzard for about $ 70 billion, its biggest deal ever and a key bet for those who want to spend more and more time in the digital world.

The blockbuster acquisition, announced Tuesday, will put the company at the forefront of the $ 175 billion gaming industry. Games on virtually every type of device, from giant consoles to smartphones, have become more popular during epidemics. Technology companies are around the industry, finding the bulk of the attention and money from three billion gamers around the world.

In the industry run by large franchises, Activision makes some of the most popular titles, including Call of Duty and Candy Crush. Yet the company has been thrilled by the recent employee revolt over allegations of sexual harassment and discrimination.

Microsoft designed the deal to strengthen the company’s hand in the new world of so-called metavers, virtual and augmented reality. Metawors has attracted a lot of investment and talent, although so far it has been more controversial than a thriving business. Facebook changed the name of its parent company to Meta late last year to underline its commitment.

But the focus on futuristic metavars currently overshadows the importance of the deal: the acquisition helps Microsoft in the long-running battle for gamers’ attention and wallets by offering top titles to its rival Sony. It also helps software giants stay ahead of powerful new competitors in gaming, such as Amazon and Google.

Phil Spencer, chief executive of Microsoft’s gaming business, said that whatever Metavers is, “gaming will be at the forefront of the mainstream.” For now, he said, the acquisition is about gaining a foothold in mobile gaming, where Microsoft rarely competes, and a studio that produces very popular games. He called the Call of Duty “one of the most wonderful entertainment franchises on earth.”

Federal regulators may raise concerns about the acquisition, as Democrats and Republicans alike push the technology giants to limit their power. On Tuesday, the Justice Department and the Federal Trade Commission announced a new effort to expand whether it should decide whether to oppose the deal.

Microsoft is valued at more than 2.3 trillion, second only to Apple. With the takeover of Activision, Microsoft will become the world’s third largest gaming company in terms of revenue, behind Tencent and Sony, the company said. Microsoft now makes Xbox consoles and owns studios that make hits like Minecraft.

The game industry is rapidly integrating. One force behind it – and one that could grab the attention of regulators – is the arms race for specific content. Microsoft sometimes makes its proprietary games only available on its own devices, such as its Xbox consoles, and unavailable on games created by competitors such as Sony’s PlayStation.

When asked if activation games like Call of Duty would be exclusive to the Xbox, Mr. Spencer would simply say, “Our goal is to get the content to reach as many players as possible.”

Microsoft is looking at ways to spend its vast cash reserves – over $ 130 billion – to expand its consumer business. It has focused on acquiring the booming social network TikTok and the popular chat app Discord.

In Activision, which faces allegations that senior executives ignored sexual harassment and discrimination, Microsoft found a target in the tension. Its shares have weighed on Activision, with shares falling 27 percent since California sued the company in July over claims.

Shares of the game maker rose more than 25 percent in trading on Tuesday. Shares of Microsoft fell 2 percent.

The deal could be seen as a victory for longtime chief executive of Activision, Bobby Kotic, whom some critics have called for. Mr. Kotik negotiated a large premium for investors – Microsoft pays $ 95 per share, about 45 percent more than its share price before the announcement, although slightly higher than the trading price before the scandal broke out.

Mr. Kotik will remain in his role until the deal is completed. The expectation is that he will step down as chief executive, although he could go into the role of adviser, according to two people familiar with his plan, who will only speak anonymously because the conversation was private.

The controversy over Activision began last summer when a California employment agency sued the company over allegations of promoting a toxic workplace culture in which women were regularly sexually harassed and discriminated against. In the following months, workers staged protests, launched social media campaigns and called on officials to resign.

Some of the top leaders in Activision left, including Blizzard Entertainment subsidiary head J. Alan Brake and the company pledged $ 250 million to increase employee diversity and said it would strengthen anti-harassment policies. But when The Wall Street Journal reported in November that Mr. Kotik had known about the harassment allegations against the employees for years and in some cases did not take action, his resignation calls only increased.

Dealing with Activision is somewhat of a face-off for Microsoft, which recently questioned the company’s culture in November. In an email to Xbox employees previously reported by Bloomberg and confirmed by the company, Mr. Spencer wrote in November that he was “disturbed and very disturbed by horrific events and actions” in Activision. On Tuesday, he appeared with Mr. Kotik to appreciate the deal, and Mr. Kotik said he felt the two companies “have similar values ​​and think the same about our cultures.”

Mr. Spencer said Microsoft “sat down with Bobby and the team and saw what plans they had” and added that the company culture was always in progress. “We strongly support the progress that he and the team are making.”

Current and former Activision employees who are leading the company in its efforts to improve its culture did not see the purchase as likely to change in the short term, especially since sales could face lengthy reviews from regulators.

It may take 12 to 18 months for the deal to close, Mr. Spencer said.

“We will continue to fight for reform and emphasize proper employee representation,” said Jessica Gonzalez, a former Activist employee and one of the organizers of the ABetterABK activist movement. “It doesn’t change anything,” she added.

Cash-rich game companies are rapidly consolidating since the epidemic boosted industry profits. The previous record for the largest merger in the game industry was set last week when the maker of games like Grand Theft Auto announced plans to buy take-to-interactive mobile game publisher Xinga for over $ 11 billion.

Last year, Electronic Arts and Take-A took part in a bidding war over Codemasters, a racing game company that eventually went to EA for 1.2 billion. Microsoft made another lucrative purchase in 2020 when it bought ZeniMax Media and its gaming studio slate for 7.5 billion.

Activision itself was a production of serial deal-making by Mr. Kotik has been rolling out small game studios for decades. It took shape in its current form when Activision – which at the time was known for creating titles for traditional gaming consoles – agreed to partner with France’s Vivendi gaming unit to expand into multiplayer online games such as World of Warcraft.

Activision later bought King, the European gaming company behind Candy Crush, to expand into mobile games. King generated $ 1 billion in operating profit during the most recent 12-month period.

“Scale is really a huge advantage in the gaming world,” said Hope Cochrane, a former chief financial officer at King, who is now managing director of Madro’s Venture Group. “You want to build a community, and you need enough people to build it.”

Activision’s gaming efforts are facing headaches. Players have penned the most recent Call of Duty release, and the release of titles such as Diablo and Overwatch has been delayed. Nevertheless, Activision remains totally profitable, reporting a profit of $ 639 million in its most recent quarter.

Mr. Kotik cited the deal as a calculation that Activision does not have the tools to keep in touch with major tech companies such as Google, Apple, Amazon and Tencent in the fast-growing gaming landscape.

“We realized that it would become an increasingly competitive world with the resources we didn’t have,” he said.

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