Microsoft to Buy Gaming Giant Activision for $68.7 Billion

Microsoft (Nasdaq: MSFT) plans to buy gaming giant Activision Blizzard (Nasdaq; ATVI) for $68.7 billion in cash, approximately a 30% premium over yesterday's market value. If the transaction closes as planned in fiscal 2023, Microsoft will become the third-largest gaming company worldwide, behind Tencent and Sony.

It will also become a changed company, throwing its full weight behind the evolution of metaverse technologies such as augmented and virtual reality (AR/VR), and driving its cloud and artificial intelligence technologies strongly into the entertainment market.

The groundwork is laid: Microsoft’s Xbox is currently the platform of choice for gamers who enjoy Activision’s gaming franchises, including “Call of Duty,” “World of Warcraft,” “Diablo,” and “Candy Crush.” And Redmond’s Game Pass subscription service based on a cloud platform, is growing like wildfire, with 25 million current subscribers – before the planned Activision merger.

More Mobility ... and Metaverse?

Microsoft, which has focused strongly on its Azure cloud environment, plans to dovetail the technologies supporting that ecosystem with its gaming empire. The deal also should increase Microsoft’s presence in the mobile computing market. “Critically, this transaction significantly expands our presence in mobile, the largest segment in gaming business,” said Microsoft CEO Satya Nadella on a conference call with investors today.

The mobile groundwork has also been prepped with Microsoft’s alliance with AT&T (NYSE: T), announced last July. It’s not a stretch to say that Microsoft’s Azure for Operators 5G cloud platform could factor in the spread of its mobile-powered metaverse efforts.

Notably, Nadella sees Microsoft’s metaverse plans as not limited to one or two specific markets. Here’s how Nadella put it this morning:

“When we think about our vision for what a metaverse can be, we believe there won’t be a single, centralized metaverse and there shouldn’t be. We need to support many metaverse platforms, as well as a robust ecosystem of content, commerce and applications. In gaming, we see the metaverse as a collection of communities and individual identities anchored in strong content franchises, accessible on every device.”

A Boost to Cloud Technologies

If Microsoft pulls off this deal, which it claims will be accretive to its earnings immediately on completion, the implications for cross-pollination of Microsoft technologies will be significant. As revenue flows into AR/VR for gaming, for example, the resulting innovations could be reflected in metaverse-style enterprise solutions such as the digital twinning for industrial applications hawked by the likes of NVIDIA (Nasdaq: NVDA) and other market movers.

There will be challenges. The 10,000-employee company Microsoft is buying is in a cultural crisis, following months of allegations of sexual misconduct and mistreatment of female employees. Absorbing the legal woes that Activision CEO Bobby Kotick faces, however, should be relatively smooth, since measures have been underway to fix the problems for months now. Kotick will remain as CEO of Activision, answering after the deal closes to CEO of Microsoft Gaming Phil Spencer.

This morning, Microsoft shares were trading at $308.28, down 2.20 (0.67%). Activision Blizzard shares soared to $84.63, up 19.20 (29.43%).