By Subrat Patnaik and Supantha Mukherjee
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 largest-ever deal and expected to be the biggest all-cash acquisition to date, 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 doing https://www.reuters.com/technology/whos-building-metaverse-2021-11-01.
"Gaming is the most exciting and dynamic genre of entertainment across all platforms and will play a significant part in the creation of metaverse platforms," Microsoft Chief Executive Satya Nadella said.
Microsoft is among the biggest companies in the world, largely due to its corporate software, such as its Azure cloud computing platform and Outlook franchise offers the price of $95 per share. This is at a premium of 45% to Activision's Friday close.
Activision shares were last up 26% to $82.10, a steep discount from the offer price. This raises concerns that the deal may be placed in the crosshairs of regulators.
While Microsoft has been able to avoid the scrutiny of Google and Facebook the deal, which would make Microsoft the third-largest gaming company in the world, will bring the Xbox maker to the attention of lawmakers, according to Andre Barlow, of Doyle, Barlow & Mazard PLLC.
He said that Microsoft was already a major player in the gaming industry.
A person who is who was aware of the situation confirmed that Microsoft would pay a $3B break-fee if the deal is not approved. This suggests that Microsoft is confident of winning antitrust approval.
The tech company's shares fell 1.9 percent in the most recent quarter.
The deal comes at a moment of weakening for Activision, maker of games like "Overwatch" and "Candy Crush". Prior to the announcement, its shares had slumped more than 37% since reaching an all-time high in the year prior and were shattered by allegations of sexual harassment against employees as well as misconduct by a few top managers.
The company is currently addressing those allegations and said on Monday that it had dismissed or pushed out more than three dozen employees and further disciplined 40 employees since July.
CEO Bobby Kotick, who said Microsoft approached him about a possible buyout, would remain as the CEO of Activision following the acquisition, although he is expected to leave when the deal is completed the deal, a source with knowledge of the plans said.
Microsoft CEO Nadella addressed the company's culture Microsoft during an interview with analysts on a conference call.
"It's critical for Activision Blizzard to drive forward in its new commitments to culture," he said, adding that "the success of this acquisition will be contingent on it."
'METAVERSE RACE FOR ARMS'
Data analytics firm Newzoo estimates that the global gaming market generated $180.3 billion in revenue in 2021. It expects this to increase to $218.8 billion by 2024.
Microsoft is already a major player in this sector, being one of the three main console manufacturers. It has been making investments such as buying "Minecraft" maker Mojang Studios and Zenimax in multibillion-dollar deals over the last few years.
It also launched an extremely popular cloud gaming service that has more than 25 million players.
According to Newzoo, Microsoft's gaming market share was 6.5% in 2020 and the addition of Activision would have increased it up to 10.7%.
Executives praised Activision's 400,000,000 monthly active users as a major draw and the role that these communities could play within Microsoft's various metaverse games.
Activision's library of games could give Microsoft's Xbox gaming platform an advantage over Sony's Playstation that has been enjoying an uninterrupted stream of exclusive games.
"The likes of Netflix have already indicated that they'd like to try gaming themselves, but Microsoft has come out swinging with today's very generous offer," said Sophie Lund-Yates Equity analyst at Hargreaves Lansdown.
Microsoft's offer is equivalent to 18 times Activision 2021 earnings before interest tax depreciation, amortization, and amortisation (EBITDA). This compares to the 16-times EBITDA value of Take-Two Interactive, a "Grand Theft Auto” maker's cash-and-shares Zynga deal. https://www.reuters.com/markets/deals/take-two-acquire-zynga-an-enterprise-value-127-billion-2022-01-10
Refinitiv data suggests that the Microsoft-Activision deal is likely to be the largest cash acquisition ever, surpassing Bayer's $63.9B offer for Monsanto in 2016 and the $60.4B InBev bid for Anheuser-Busch in 2008.
Nvidia and Microsoft have made big bets on this metaverse. The buzz about it has intensified since late last year, when Facebook renamed itself Meta Platforms to reflect its emphasis on virtual reality.
"This is a significant acquisition for the consumer aspect of the business. And Premium Ebooks , Microsoft acquiring Activision really will start the arms race in the metaverse," David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors said.
"We believe that the deal will be concluded," he said, however, he warned: "This will get a lot of looks from a regulatory perspective.