Microsoft’s $68.7 Billion Deal to Acquire Activision Blizzard Will Create a New Gaming Behemoth

Todd Bishop, GeekWire
Todd Bishop is GeekWire's co-founder and editor, a longtime technology journalist who covers subjects including cloud tech, e-commerce, virtual reality, devices, apps and tech giants such as Amazon.com, Apple, Microsoft and Google. Follow him @toddbishop, email todd@geekwire.com, or call (206) 294-6255.
Microsoft’s $68.7 Billion Deal to Acquire Activision Blizzard Will Create a New Gaming Behemoth
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Microsoft is aiming to vault itself into the upper echelon of video games with its $68.7 billion deal to acquire Activision Blizzard, the gaming giant behind such franchises as Warcraft Diablo, Overwatch, Call of Duty and Candy Crush.

Announced Tuesday morning, it would be the largest acquisition in the Redmond company’s history, eclipsing its $26 billion purchase of LinkedIn in 2017. Adding to its existing Windows PC and Xbox gaming businesses, Microsoft says it will become the third-largest gaming company by revenue, behind Tencent and Sony.

“Today, we face strong global competition from companies that generate more revenue from game distribution than we do from our share of games sales and subscriptions,” said Microsoft CEO Satya Nadella on a call with investors and analysts Tuesday morning. “We need more innovation and investment in content creation and fewer constraints on distribution.”

Activision Blizzard, based in Santa Monica, Calif., will bring Microsoft some of the most iconic franchises in modern gaming, 10,000 employees, and a recent spate of revelations of sexual harassment and other workplace misconduct.

Bobby Kotick, Activision Blizzard CEO, will continue to serve in that role, Microsoft said. After the deal closes, Activision Blizzard will report to Phil Spencer, who will have the new title of CEO of Microsoft Gaming.

Update: A Microsoft representative clarified that the statement referring to Kotick continuing to serve as CEO was a reference to the period from now until the deal closes, in which Microsoft and Activision Blizzard will continue to operate separately. The company isn’t commenting on leadership plans beyond that.

Under the all-cash deal, Microsoft will pay $95 per share of Activision stock, a 45% premium to Activision Blizzard’s Jan. 14 share price. Microsoft says it expects the deal to close in its 2023 fiscal year, which begins in July of this calendar year.

Activision Blizzard was on track for $8.7 billion in net revenue for 2021 as of November, up from $8.1 billion in 2020.

Microsoft’s gaming revenue rose 33% to $15.4 billion in its 2021 fiscal year, which ended in June.

Consumer spending on video games reached a record $60.4 billion last year, up 8% from 2020, according to data published today by the NPD Group research firm. Activision Blizzard’s Call of Duty: Vanguard and Call of Duty: Black Ops: Cold War were the top-selling video games in the U.S. last year.

The announcement comes a week after Take-Two Interactive announced a $12.7 billion deal to acquire mobile game maker Zynga, promising to combine the companies behind Grand Theft Auto and FarmVille.

“Mobile is the biggest category of gaming, and it’s an area where we’ve not had a major presence before this transaction,” Spencer said. Activision acquired King, the Candy Crush maker, for $5.9 billion in 2015.

The addition of Activision Blizzard also promises to bolster Microsoft’s Game Pass subscription service. After the deal is completed, Microsoft “will offer as many Activision Blizzard games as we can within Game Pass,” including new titles and games from the company’s back catalog, Spencer said.

Microsoft’s deal to acquire Activision Blizzard comes about a year after Microsoft’s $7.5 billion acquisition of ZeniMax Media, the Maryland-based holding company for the video game publisher Bethesda Softworks, the company behind such games as Doom, Fallout, Elder Scrolls, and the Wolfenstein series.

On the call Tuesday morning, Nadella also addressed Activision’s challenges with misconduct, saying that creating a healthy corporate culture is his top priority, requiring a mindset of continuous improvement.

“This is hard work,” Nadella said. “It requires consistency, commitment, and leadership that not only talks the talk but walks the walk. That’s why we believe it’s critical for Activision Blizzard to drive forward on its renewed cultural commitments.”

Activision Blizzard reached a consent decree with the U.S. Equal Opportunity Employment Division in November 2021.

Just last week, Microsoft’s board hired an outside law firm to review the company’s own sexual harassment and gender discrimination policies and practices, including its handling of past allegations against Microsoft co-founder Bill Gates, in response to a shareholder resolution that passed overwhelmingly in the fall.

Among the big U.S. tech companies, Microsoft may be in a unique position to make major acquisitions such as this right now.

“From a regulatory perspective, MSFT is not under the same level of scrutiny as other tech stalwarts (Amazon, Apple, Facebook, Google) and ultimately Nadella saw a window to make a major bet on consumer while others are caught in the regulatory spotlight and could not go after an asset like this,” said Wedbush analyst Dan Ives in a note on the deal.

Microsoft had more than $130 billion in cash and short-term investments as of Sept. 30. Its market value is about $2.3 trillion. Microsoft stock was down slightly, less than 1%, to about $308 per share in early trading Tuesday morning, following the announcement of the Activision Blizzard deal.

Activision Blizzard is scheduled to report its fourth quarter and year-end results on Feb. 3. Microsoft reports its fiscal second quarter results next week, on Jan. 25.

This story first appeared on GeekWire. GeekWire’s Taylor Soper and John Cook contributed to this report.

🎬 Paramount and Skydance Are Back On
Image Source: Paramount

Happy Friday Los Angeles! Hope you all had a fantastic Fourth!!

🔦 Spotlight

Paramount and Skydance Media have rekindled talks to merge after negotiations abruptly halted in June. The proposed deal, contingent on approval from Paramount’s board, aims to combine Paramount’s extensive media holdings—including CBS, MTV, and Nickelodeon—with Skydance’s film expertise showcased in hits like "Top Gun: Maverick." This merger signals a potential transformation in the media landscape, positioning the new entity to compete more effectively amid challenges from streaming services and the decline of traditional cable TV.

Led by Shari Redstone, Paramount’s controlling shareholder via National Amusements, the deal represents a pivot towards revitalizing Paramount’s strategic direction amidst financial struggles and shareholder concerns. The involvement of major investors like RedBird Capital Partners and David Ellison underscores the financial backing aimed at stabilizing Paramount’s operations and addressing its $14 billion debt burden. Importantly, the agreement includes provisions to protect National Amusements from potential legal challenges, addressing previous hurdles that stalled earlier negotiations.

The deal also includes a 45-day period for Paramount to explore alternative offers, highlighting continued interest from other potential buyers like Barry Diller’s IAC and media executive Edgar Bronfman Jr. This flurry of activity underscores the significant stakeholders’ interest in Paramount’s future and its potential as a key player in a rapidly evolving media industry.


🤝 Venture Deals

LA Companies

  • Sidecar Health, a startup that offers personalized health insurance plans to businesses that allow members to see any doctor and pay directly at the time of service, raised a $165M Series D led by Koch Disruptive Technologies. - learn more

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😊🚘 Rivian's $5 Billion Lifeline

🔦 Spotlight

Volkswagen announced on Tuesday a significant investment of up to $5 billion in Rivian, a struggling electric truck manufacturer known for its vehicles' distinctive smiley-face design reminiscent of Volkswagen's iconic Beetle. This partnership marks a unique collaboration between the world's second-largest automaker and a startup grappling with profitability challenges akin to those faced by Tesla. Volkswagen's infusion of $1 billion initially, potentially rising to $5 billion pending regulatory approval, underscores its strategic pivot towards enhancing its electric vehicle (EV) software capabilities, an area where analysts believe the company has lagged.

For Rivian, which has received acclaim for its electric trucks and SUVs but struggles with production ramp-up and financial losses, the investment offers crucial financial backing. The company plans to utilize Volkswagen's expertise in manufacturing, leveraging the German automaker's annual production of nearly 10 million vehicles. This alliance aims to bolster Rivian's efforts to launch new models like the R2 midsize SUV and complete its Georgia factory, paused earlier this year to conserve funds. Rivian's stock surged upwards of 40% following the announcement, reflecting investor optimism in the company's future prospects.

Despite their differing corporate cultures—Volkswagen's traditional, structured approach contrasted with Rivian's agile tech startup ethos—the CEOs of both companies expressed mutual admiration and shared goals during the partnership announcement. The collaboration is expected to yield EV software solutions benefiting Volkswagen's various brands, potentially including Audi and Porsche, while allowing Rivian to maintain its brand identity and separate vehicle marketing strategies. This strategic partnership between Volkswagen and Rivian not only promises to revolutionize the electric vehicle market but also highlights the potential for collaboration between established automakers and innovative startups in Southern California, where Rivian is based. Here’s to hoping these smiling cars will balance out some of the inevitable LA road rage.

🤝 Venture Deals

LA Companies

  • HeyGen, a startup that allows users to generate videos with AI-created avatars that can lip-sync to provided audio, making it easier for businesses to create engaging video content, raised a $60M Funding Round at a $500M post-money valuation. The deal was led by Benchmark, with Conviction, Thrive Capital, and Bond Capital also stepping up. - learn more
  • Pomerium, a startup that provides a secure access platform that dynamically verifies user identities to ensure authorized access to applications and services, raised a $13.8M Series A round led by Benchmark and including previous investors Bain Capital, Haystack, and SNR. - learn more
  • Etched, a maker of transformer-specialized AI chips, raised a $120M Funding Round. - learn more
  • Rocketlane, a customer onboarding platform, raised a $24M Series B co-led by 8VC, Matrix Partners India, and Nexus Venture Partners. - learn more
  • Sift, a developer of unified observability solutions for hardware sensor data, raised a $17.5M Series A led by GV. - learn more
  • LOST iN, a travel media brand, raised a $4M Seed Round led by MaC Venture Capital. - learn more

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