Microsoft buys Activision Blizzard for nearly $70 billion

SEATTLE — Microsoft plans to buy Activision Blizzard, the powerful but troubled video game company, for nearly $70 billion, its biggest deal ever and betting people will spend more and more time in the game. digital world.

The blockbuster acquisition, announced on Tuesday, would propel the company to the top spot in the $175 billion gaming industry. Games on virtually all types of devices, from chunky consoles to smartphones, have grown in popularity even more during the pandemic. Tech companies swarm the industry, seeking a bigger slice of attention and money from the world’s three billion gamers.

In an industry driven by major franchises, Activision makes some of the most popular titles, including Call of Duty and Candy Crush. Yet the company has been rocked in recent months by an employee uprising over accusations of sexual harassment and discrimination.

Microsoft touted the deal as strengthening the company’s hand in the so-called metaverse, the burgeoning world of virtual and augmented reality. The Metaverse has attracted huge amounts of investment and talent, though so far it’s more of a buzzword than a booming business. Facebook renamed its parent company Meta late last year to underscore its commitment.

But the focus on the futuristic metaverse belies the deal’s significance in the present: the acquisition helps Microsoft win over rival Sony in the long-running battle for gamers’ attentions and wallets by offering the best securities. It also helps the software giant stay ahead of powerful new competitors in gaming, like Amazon and Google.

Phil Spencer, general manager of Microsoft’s games business, said that regardless of the metaverse, “gaming will be at the forefront of mainstreaming.” For now, he said, the acquisition is aimed at securing a stronghold in mobile gaming, where Microsoft barely competes, and a studio that produces wildly popular games. He called Call of Duty “one of the amazing entertainment franchises on the planet”.

Federal regulators could worry about the acquisition as Democrats and Republicans have pushed to limit the power of the tech giants. On Tuesday, the Justice Department and the Federal Trade Commission announced a new effort to expand how they should determine whether agreements are anticompetitive.

Microsoft is valued at over $2.3 trillion, second only to Apple. The Activision takeover would make Microsoft the world’s third-largest games company by revenue, behind Tencent and Sony, the company said. Microsoft now makes Xbox consoles and has studios that produce hits like Minecraft.

The gaming industry is consolidating rapidly. One force behind this – and one that could catch the attention of regulators – is the arms race for exclusive content. Microsoft sometimes makes games it owns available only on its own devices, like its Xbox console, and unavailable on those made by competitors, like Sony’s PlayStation.

When asked if Activision games like Call of Duty would become exclusive to Xbox, Mr. Spencer simply replied that “our goal is to allow content to reach as many gamers as possible”.

Microsoft has been looking for ways to spend its huge cash reserve — more than $130 billion — to grow its consumer business. He considered acquiring the booming social network TikTok and the popular chat app Discord.

In Activision, which faces accusations that top executives ignored sexual harassment and discrimination, Microsoft found a target under stress. The allegations have weighed on Activision, its shares having fallen 27% since California sued the company in July over the claims.

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

The deal can be seen as a win for longtime Activision chief executive Bobby Kotick, whom some critics had sought to oust from controversy. Mr Kotick negotiated a big premium for investors – Microsoft is paying $95 per share, around 45% more than his company’s pre-announcement share price, but only slightly above the trading price before the scandal broke.

Mr. Kotick will remain in his role until the transaction is completed. Next, he is expected to step down as chief executive, although he could take on an advisory role, according to two people with knowledge of his plans, who would speak only anonymously as discussions were private.

The controversy at Activision began last summer when a California employment agency sued the company on charges of promoting a toxic work culture in which women were routinely sexually harassed and discriminated against. In the months that followed, employees staged protests, launched social media campaigns and called on executives to resign.

Some top Activision executives have left, including Blizzard Entertainment subsidiary chief J. Allen Brack, and the company has pledged $250 million to increase employee diversity and said it will strengthen anti-harassment policies . But when the Wall Street Journal reported in November that Mr Kotick had been aware for years of accusations of harassment against employees and, in some cases, had failed to act, calls for his resignation only backfired. grow.

Achieving a deal with Activision is something of a U-turn for Microsoft, which as recently as November was questioning the company’s culture. In an email to Xbox employees that was previously reported by Bloomberg and confirmed by the company, Spencer wrote in November that he was “disturbed and deeply disturbed by the horrific events and actions” at Activision. On Tuesday he appeared alongside Mr Kotick to praise the deal, and Mr Kotick said he believed the two companies had ‘similar values ​​and thought about our cultures in the same way’ .

Mr Spencer said Microsoft “sat down with Bobby and the team and looked at the plan they put in place”, adding that corporate culture was still a work in progress. “We are very supportive of the progress he and the team are making.”

Current and former Activision employees who led the effort to get the company to reform its culture didn’t believe the purchase was likely to drive near-term change, particularly because the sale could make the biggest difference. subject to lengthy scrutiny by regulators.

The deal could take 12 to 18 months to complete, Mr Spencer said.

“We will continue to strive for improvement and focus on good employee representation,” said Jessica Gonzalez, former Activision employee and one of the organizers of the activist movement ABetterABK. She added that “it doesn’t change anything”.

Gaming companies, which have been brimming with cash since the pandemic boosted industry profits, have been consolidating quickly. The previous record for the biggest merger in the games industry was set last week, when Take-Two Interactive, the maker of games like Grand Theft Auto, announced plans to buy mobile games publisher Zynga. for over $11 billion.

Last year, Electronic Arts and Take-Two got into a bidding war over Codemasters, a racing game company that was eventually awarded to EA for $1.2 billion. Microsoft made another sensational purchase in 2020 when it bought ZeniMax Media and its roster of game studios for $7.5 billion.

Activision itself was the product of a serial deal by Mr. Kotick over the decades, rolling up smaller game studios. It took shape in its current form when Activision – then primarily known for producing titles for traditional game consoles – agreed to partner with French gaming unit Vivendi to expand into multiplayer online games. like World of Warcraft.

Activision then bought King, the European games company behind Candy Crush, to expand into mobile games. King made $1 billion in operating profit in the last 12 months.

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

Activision’s gaming efforts are facing headwinds. Gamers have been analyzing the latest Call of Duty release and releases of titles like Diablo and Overwatch have been delayed. Still, Activision remains fairly profitable, posting a profit of $639 million in its latest quarter.

Mr Kotick called the compute deal that Activision lacked the tools to keep up with big tech companies like Google, Apple, Amazon and Tencent in the rapidly changing gaming landscape.

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

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