Microsoft has agreed to buy Activision Blizzard, the video game maker, for about $68.7bn, including net cash, in the biggest deal ever for the tech company founded by Bill Gates.
Under the terms of the deal, Microsoft would pay shareholders of the company behind gaming franchises such as Call of Duty, World of Warcraft and Candy Crush $95 per share, a 45 per cent premium on its closing price last week.
It is the latest in a wave of dealmaking in the gaming sector. Take-Two Interactive, the maker of the popular Grand Theft Auto game series, agreed last week to buy rival Zynga, the maker of FarmVille and Words with Friends, for $12.7bn.
The purchase would cement Microsoft’s big lead over other technology giants as the video games sector finds itself at the centre of the latest scramble for dominance in digital entertainment.
Besides amassing content that would boost its position against longtime rival Sony, the world’s biggest software company said the Activision deal would serve as a springboard for its move into the metaverse, the name given to the immersive virtual worlds that all the big tech companies are racing to build.
“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, chair and chief executive of Microsoft.
The move represents Nadella’s biggest bet since being appointed chief in 2014. It makes Microsoft the world’s third-biggest gaming company in terms of revenues, behind only China’s Tencent and Japan’s Sony, while building on the tech group’s strengths in personal computing and business software.
Nadella said the large online reach of both companies would give Microsoft a head-start in creating online communities around gaming that would eventually reach billions of people.
The 400m monthly users of Activision games like Candy Crush, along with the 25m subscribers for Microsoft’s subscription games service Game Pass, would leave the company with “one of the largest and most engaged communities in all of entertainment”, he said.
The news sent shares in other leading video game publishers sharply higher on expectations that it would lead to more deals in the sector. Electronic Arts, whose games include the FIFA and Madden sports franchises, rose more than 5 per cent, while Ubisoft, maker of Assassin’s Creed, rose 8 per cent.
Microsoft swooped with Activision’s shares down almost 30 per cent since a lawsuit was filed against the company in July, alleging widespread sexual harassment and gender pay issues at the company.
As Microsoft’s stock has soared under Nadella’s tenure, filings show that he has built a holding in the company’s stock that now stands at about $255m, even after he sold about half his shares in late November, raising $285m.
That compares to Bobby Kotick, Activision Blizzard’s chief executive, who owns shares in the gaming company worth over $370m at the price of Microsoft’s proposed takeover.
Kotick’s $155m pay package for 2020, which makes him one of the highest paid chiefs in the US, prompted protests from some investors in June. He will continue to run the division after the sale, but report to Microsoft gaming chief Phil Spencer.
The decision to keep Kotick comes after he admitted that the company’s initial responses to revelations of cases of harassment were “tone deaf”.
“We, like many companies, have had culture improvement opportunities,” Kotick told the FT on Tuesday. “We moved with speed and unlimited resources to change the workplace culture,” adding “it’s continuous work”.
The company fired 20 employees in October as part of an effort to clean up its culture following allegations of widespread gender-based discrimination and harassment.
Kotick said Activision was no longer big enough on its own to compete against the likes of top gaming companies such as Tencent and Sony and a host of potential deep-pocketed competitors including Apple, Google, Amazon and Netflix.
“We realised there are a lot of categories of technology and talent that we needed access to that we didn’t have and couldn’t build fast enough,” he said naming purpose-built cloud platforms for streaming gaming or cyber security software to protect players’ data.
Activision shares were up 37 per cent in premarket trading after the deal was announced. The company said that with the parties seeking regulatory approval, a deal was expected to close some time in Microsoft’s fiscal year ending June 30, 2023.
Regarding potential antitrust scrutiny of a deal that will combine two leading gaming companies, Kotick said there has “never been more competition than there is today . . . that’s a big important motivator behind this transaction.”