* Biggest gaming industry deal and all-cash purchase
* Microsoft would become world No. 3 gaming company
* Offers a 45% premium for maker of 'Call of Duty'
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 biggest-ever
and set to be the largest all-cash acquisition on record, will
bolster its firepower 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
"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," Microsoft Chief
Executive Satya Nadella said.
Microsoft, one of the biggest companies in the world largely
thanks to corporate software such as its Azure cloud computing
platform and Outlook franchise, is offering $95 per share - a
45% premium to Activision's Friday close.
Activision's shares were last up 26% at $82.10, still a
steep discount to the offer price, reflecting concerns the deal
could get stuck in regulators' crosshairs.
Microsoft has so far avoided the type of scrutiny faced by
Google and Facebook but this deal, which would make it the
world's third largest gaming company, will put the Xbox maker on
lawmakers' radars, said Andre Barlow of the law firm Doyle,
Barlow & Mazard PLLC.
"Microsoft is already big in gaming," he said.
However, a source familiar with the matter said Microsoft
would pay a $3 billion break-fee if the deal falls through,
suggesting it is confident of winning antitrust approval.
The tech major's shares were last down 1.9%.
The deal comes at a time of weakness for Activision, maker
of games such as "Overwatch" and "Candy Crush". Before the deal
was announced, its shares had slumped more than 37% since
reaching a record high last year, hit by allegations of sexual
harassment of employees and misconduct by several top managers.
The company is still addressing those allegations and said
on Monday it had fired or pushed out more than three dozen
employees and disciplined another 40 since July.
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 after it closes, a
source familiar with the plans said.
In a conference call with analysts, Microsoft boss Nadella
did not directly refer to the scandal but talked about the
importance of culture in the company.
"It's critical for Activision Blizzard to drive forward on
its renewed cultural commitments," he said, adding "the success
of this acquisition will depend on it."
'METAVERSE ARMS RACE'
Data analytics firm Newzoo estimates the global gaming
market generated $180.3 billion of revenues in 2021, and expects
that to grow to $218.8 billion by 2024.
Microsoft already has a significant beachhead in the sector
as one of the big three console makers. It has been making
investments including buying "Minecraft" maker Mojang Studios
and Zenimax in multibillion-dollar deals in recent years.
It has also launched a popular cloud gaming service, which
has more than 25 million subscribers.
According to Newzoo, Microsoft's gaming market share was
6.5% in 2020 and adding Activision would have taken it to 10.7%.
Executives talked up Activision's 400 million monthly active
users as one major attraction to the deal and how vital these
communities could play in Microsoft's various metaverse plays.
Activision's library of games could give Microsoft's Xbox
gaming platform an edge over Sony's Playstation, which has for
years enjoyed a more steady stream of exclusive games.
"The likes of Netflix have already said they'd like to foray
into gaming themselves, but Microsoft has come out swinging with
todays rather generous offer," said Sophie Lund-Yates, equity
analyst at Hargreaves Lansdown.
Microsoft's offer equates to 18 times Activision's 2021
earnings before interest, tax, depreciation and amortisation
(EBITDA). That compares with the 16 times EBITDA valuation of
"Grand Theft Auto" maker Take-Two Interactive's
cash-and-shares deal for Zynga last week. https://www.reuters.com/markets/deals/take-two-acquire-zynga-an-enterprise-value-127-billion-2022-01-10
According to Refinitiv data, the Microsoft-Activision deal
would be the largest all-cash acquisition on record, trumping
Bayer's $63.9 billion offer for Monsanto in 2016 and the $60.4
billion that InBev bid for Anheuser-Busch in 2008.
Tech companies from Microsoft to Nvidia have placed big bets
on the so-called metaverse, with the buzz around it intensifying
late last year after Facebook renamed itself as Meta Platforms
to reflect its focus on its virtual reality business.
"This is a significant deal for the consumer side of the
business and more importantly, Microsoft acquiring Activision
really starts the metaverse arms race," David Wagner, equity
analyst and portfolio manager at Aptus Capital Advisors said.
"We believe the deal will get done," he said, but cautioned:
"This will get a lot of looks from a regulatory standpoint."
(Reporting by Subrat Patnaik and Supantha Mukherjee; Additional
reporting by Ankur Banerjee, Eva Mathews and Uday Sampath in
Bengaluru, Kenneth Li, Krystal Hu and Greg Roumeliotis in New
York, Diane Bartz in Washington; Writing by Pravin Char; Editing
by Carmel Crimmins, Mark Potter and Lisa Shumaker)