Microsoft to buy game developer Activision for $69 billion in push for metaverse

• Microsoft CEO said that about 3 billion people worldwide play video games, hinting at the market depth of the gaming industry

• The deal is a 45% premium to Activision’s Friday close

Microsoft Corp (NASDAQ: MSFT) on Tuesday said it will buy “Call of Duty” videogame maker Activision Blizzard Inc (NASDAQ: ATVI) for nearly $69 billion in the biggest gaming industry deal in history to position itself for the next generation of the internet and virtual future.

In an all-cash deal, Microsoft offered to pay $95 per share representing a premium of 45% to Activision’s Friday close, totaling $68.7 billion, marking its biggest-ever acquisition.

With the deal, Microsoft is betting on the “metaverse,” a virtual online world where people can work, play and socialize, as many of its biggest rivals are currently working on it.

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“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” Microsoft CEO Satya Nadella said.

Although there are concerns that the deal could get stuck in regulatory review, if Microsoft can manage to avoid scrutiny, it will become the world’s third-largest gaming company after Sony and Tencent.

Shares of Activision soared about 26% on Tuesday following the news, while Microsoft’s fell nearly 2.5%.

Deal terms

Activision has caught up in controversy for the last several months after reports of sexual misconduct and harassment among the company’s executives.

On Monday, Activision said it has fired more than three dozen employees and disciplined another 40 since July over the sexual harassment allegations.

In a conference call with analysts, Nadella said, “It’s critical for Activision Blizzard to drive forward on its renewed cultural commitments,” without mentioning anything about the scandal, and noted, “the success of this acquisition will depend on it.”

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Under the deal, Activision CEO Bobby Kotick, who has faced calls to resign over the cultural problems within his company, will remain CEO during the transition.

Microsoft said Activision will report to Xbox CEO Phil Spencer after the deal closes, implying Kotick could depart after the transition.

Microsoft said it expects to close the deal in its fiscal 2023.

Metaverse and gaming

The Redmond-tech giant has recently gotten more aggressive with gaming and bought game maker Bethesda for $7.5 billion last year in March.

The deal also plays into a long-term vision for Microsoft as it competes with Facebook’s parent company Meta  Platforms Inc (NASDAQ: FB), to develop technologies to create a virtual world called the metaverse.

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“When we think about our vision for what a metaverse can be, we believe there won’t be a single, centralized metaverse,” Nadella said on the call, suggesting that Microsoft sees an opportunity for multiple metaverses and several rivals to compete soon.

“The last two years, in particular, have shown how critical games are to helping people maintain a sense of community and belonging, even when they are apart,” Nadella said.

He also mentioned that about 3 billion people worldwide play video games, hinting at the market depth and Microsoft’s plan.

Picture Credit: TRTWorld