Microsoft (NASDAQ: MSFT) announced it has just bought Activision Blizzard (NASDAQ: ATVI) in a $68.7 billion deal. Activision Blizzard (NASDAQ: ATVI) is the publisher of mega-franchise games like Candy Crush and Call of Duty. This is the biggest deal in the gaming industry in history and marks the arms race for gaming and the metaverse as global technology giants stake claims in a future they believe will mostly be virtual.
Microsoft announced the deal on Tuesday. It is an all-cash acquisition and the biggest on record, promising to put Microsoft in the third position in the gaming industry behind Sony and Tencent. It also shows that Microsoft believes in the metaverse and is placing a huge bet on it. The metaverse, as described, will be a virtual online world where people can socialize, work, and play.
According to Microsoft Chief Executive Satya Nadella, gaming is an exciting field today and the most dynamic entertainment category. Furthermore, he believes that gaming will be pivotal to the success of the metaverse.
After the announcement, Activision's shares were up 26% at $82.10. The price of the shares is still at a discount, though, because investors are concerned about the regulatory scrutiny that the deal will have to face. This deal will put Microsoft (NASDAQ: MSFT) on the radar of regulators and face the type of scrutiny that companies like Google (NASDAQ: GOOGL), Apple ($166.9|0.64%), and Facebook (NASDAQ: FB) have encountered in the recent past.
But Microsoft is confident of winning the antitrust battle. It has already promised to pay a $3 billion break fee when the deal sees the light.
Activision (NASDAQ: ATVI) has had some problems of its own. Before the deal announcement, the shares of Activision had slumped 37% due to allegations of sexual harassment by employees and misconduct among the ranks of top managers. Addressing these concerns, the company said it had fired about three dozen employees, and some 40 more were put on disciplinary measures. Microsoft, though, counts on the company's strength in the gaming industry.
Microsoft’s consumer strategy has not been on par with its business-to-business offerings. The company has seen massive success in cloud division arms like Microsoft Azure and Office 365, but it believes its consumer offerings will be turbocharged with this deal.
Daniel Ives, an analyst at Wedbush, believes that Microsoft has invested heavily in the gaming industry, and this deal will jump-start its gaming endeavors. In a note to clients, he said that “gaming is the first monetization feature of the metaverse, which indicates Microsoft’s clear intentions for the metaverse. In addition, Activision’s stock has been under pressure over the past months, and Microsoft saw this as a window of opportunity to buy a unique asset that would play a huge role in its consumer strategy going forward.”
Ives is not far from the truth. Gaming has been a huge revenue earner for companies. During the pandemic, lockdowns across the globe served as fuel for a game-playing boom for alleviating boredom, which translated into increased revenues for gaming companies. It has also prompted several deals in this sector. For example, last week, Take Two Interactive (NASDAQ: TTWO), the maker of Grand Theft Auto and several hit video games, acquired Zynga (NASDAQ: ZNGA) in a $12.7 billion deal that made it a global console and mobile gaming arena giant.
The shares of Sony, the biggest name in the gaming industry, fell 13% after the deal was announced, and this would make it even more determined to block this deal at the antitrust desk. Already, some analysts are pricing in the possibility of that happening.
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