Microsoft buys Call of Duty maker Activision for US $68.7 billion

Microsoft Corp is buying Call of Duty maker Activision Blizzard for US $68.7 billion in the biggest gaming industry deal in history, as global technology giants stake their claims to a virtual future.

Microsoft's biggest ever acquisition on Tuesday will boost its firepower in the booming videogaming market where it takes on leaders Tencent and Sony, according to a deal announced by Microsoft on Tuesday.

It also represents the American multinational's bet on the metaverse, virtual online worlds in which people can work, play and socialise, as many of its biggest competitors are already doing.

Gaming is the most dynamic and exciting category of entertainment across all platforms today and will play a key role in the development of metaverse platforms, according to Satya Nadella, Microsoft Chief Executive.

Microsoft's offer of US $95 per share represents a premium of 45 per cent over Activision's Friday close. Activision's shares were last up 27 per cent at US $83.11, a steep discount to the offer price, reflecting concerns that the deal could get stuck in regulators' crosshairs.

Microsoft has so far avoided the 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 the lawmakers' radars, said Andre Barlow of the law firm Doyle, Barlow Mazard PLLC.

Microsoft is already big in gaming, he said.

A source familiar with the matter said Microsoft would pay $3 billion for a US $3 billion break-fee if the deal falls through, suggesting it is confident that it will win antitrust approval.

The tech major's shares fell by 1.3 per cent.

The deal comes at a time of weakness for Activision, maker of games such as Candy Crush. Before the deal was announced, its shares had slumped more than 37 per cent since reaching a record high last year, hit by allegations of sexual harassment of employees and misconduct by several top managers.

The company has fired or pushed out more than three dozen employees and disciplined another 40 since July, and is still addressing those allegations.

Bobby Kotick, who said Microsoft reached out to him for a possible buyout, would continue to be CEO of Activision after the deal.

In a conference call with analysts, Microsoft boss Nadella talked about the importance of culture in the company.

He said it is critical for Activision Blizzard to drive forward on its renewed cultural commitments, and that the success of this acquisition will depend on it. In 2021, the global gaming market generated US $180.3 billion of revenues, and expects to grow to US $218.8 billion by 2024, according to Newzoo.

Microsoft is one of the three big console makers that already has a significant beachhead in the sector. In the past few years, it has been making investments including buying Minecraft maker Mojang Studios and Zenimax.

In 2020, Microsoft's gaming market share was 6.5 per cent and Activision would have taken it to 10.7 per cent, according to Newzoo.

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 enjoyed a steady stream of exclusive games for years.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown said that Netflix has already said they'd like to get into gaming themselves, but Microsoft has come out swinging with today s rather generous offer.

According to Refinitiv data, the deal would be the largest cash acquisition on record, trumping Bayer's US $63.9 billion offer for Monsanto in 2016 and US $60.4 billion that InBev bid for Anheuser-Busch in 2008.

Tech companies from Microsoft to Nvidia have placed large bets on the so-called metaverse, with the buzz around it intensifying late last year after Facebook renamed itself Meta Platforms to reflect its focus on its virtual reality business.

David Wagner, Equity Analyst and Portfolio Manager at Aptus Capital Advisors said that this was a significant deal for the consumer side of the business and that Microsoft acquiring Activision really starts the metaverse arms race.

He said we believe the deal will get done, but cautioned that this will get a lot of attention from a regulatory standpoint.