What to Make of Microsoft’s Huge Acquisition
Microsoft (NSDQ: MSFT) made a big splash recently by agreeing to buy game maker Activision Blizzard (NSDQ: ATVI). If approved, the Activision deal would be Microsoft’s largest acquisition ever, an all-cash deal worth $95 per share, or roughly $70 billion in total. If the deal goes through, it would be the largest tech deal in history.
For ATVI holders, the purchase price represents a 45% premium over ATVI’s last closing price before the news announcement. The stock jumped 26% overnight. (The stock didn’t jump all the way to the acquisition price because the market typically assigns a discount to account for the possibility that the deal falls through.)
The acquisition will give Microsoft ownership of some of the most popular gaming franchises of all time, including Call of Duty and World of Warcraft. Activision’s games have almost 400 million monthly active players across all platforms. Additionally, with Activision comes mobile developer King, best known for the huge hit Candy Crush, which bolsters Microsoft’s relatively weak presence in mobile gaming.
Microsoft will certainly seek to add Activision’s titles as soon as possible to Game Pass, its gaming subscription service, which currently offers more than 100 titles on console and PC platforms. Adding highly popular titles should enable Microsoft to increase the Game Pass subscribership and possibly increase the subscription fee.
Moreover, it’s possible that Microsoft may make some of Activision’s games exclusive to its Xbox and PC platforms, though that would counter the purpose of having multiplayer games that enables all players from around the world to participate across various platforms. In addition, making highly popular games exclusive may raise antitrust concerns.
Only time will tell how Microsoft decides to integrate Activision assets with its existing portfolio, but there’s no doubt Microsoft is buying some high-quality gaming assets and intellectual properties.
Activision does come with some fleas. The company has either fired or disciplined about 80 employees for sexual harassment or other misconduct in the past year. Hundreds of employees have staged walkouts to protest layoffs and alleged management coverup of sexual misconduct.
The company also is plagued by lawsuits related to harassment and discrimination allegations. The problems appear to have resulted in the development delays in the release of some popular titles and negatively impacted its stock. Fortunately, Microsoft’s own company culture appears to be on very solid ground, with excellent public ratings from employees.
If Microsoft didn’t think it could fix Activision’s workplace problems, it likely wouldn’t have agreed to pay the 45% premium. As it integrates with Activision, we think Microsoft should be able to clean house, install better management, and leave Activision’s recent ugly issues in the rearview mirror.
Building Blocks to the Metaverse
Interestingly, Microsoft frames the acquisition as an important step toward building a metaverse, a new buzzword that broadly refers to a conceptual shared virtual world where users could interact with digital objects and even with each other. The idea is to have a virtual world where users can spend money for goods as they would in the real world.
The user may be physically sitting in his or her chair, but he or she would be fully immersed in a virtual world. Think of a world similar to the one depicted in the 2018 film Ready Player One. Technologies like virtual and augmented reality, artificial intelligence, edge computing, and blockchain are expected to be important to this next evolution of the Internet.
‘Today, most major tech companies are conducting some type of work related to the metaverse. Facebook last year even rebranded itself as Meta Platforms (NSDQ: FB).
Interestingly, Activision itself doesn’t really have any technology that screams metaverse because its games still need third-party platforms, such as the Xbox and PlayStation, to work and they are not fully immersive.
However, even if Activision doesn’t have any metaverse to add to what Microsoft has been working on in-house, Microsoft can still can use Activision’s popular games as the first place to build an extensive metaverse. It’s also possible that Microsoft is stressing the metaverse to take attention away from the fact that the purchase will make it the biggest U.S. gaming company, to lessen the chance that regulators will reject the deal.
This Microsoft-Activision deal shows that in the tech sector, no matter how big the company, it can still be a takeover target because every company is looking for an edge. Additionally, the deal also shows how fast deals can happen.
Before the Microsoft-Activision announcement, there was no hint that any such deal was in the works. Furthermore, the deal confirms that even though it only started gathering steam in the last year or two, the concept of the metaverse is being taken very seriously. Tech investors need to keep ears and eyes open at all times to catch the latest trends.
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