Earlier this week, Microsoft announced plans to purchase video game giant Activision Blizzard for $68.7 billion in cash.
On Tuesday, Activision’s stock closed at $82.31 per share, representing more than 25%. Microsoft will be paying $95 per share for Activision. With this acquisition, Microsoft has made its largest purchase to date, following its acquisition of LinkedIn in 2016 for $26.2 billion.
Activision, known for popular games such as Call of Duty and Tony Hawk’s Pro Skater, has been mired in controversy for several months after reports of sexual misconduct and harassment among the company’s executives. Following an investigation, Activision announced it had terminated dozens of executives.
The deal provides that Bob Kotick, the CEO of Activision who has faced calls to step down over culture issues within his company, will remain as CEO during the transition. After the acquisition is completed, Activision will report to Phil Spencer, Microsoft’s Xbox head, implying Kotick may leave after the change. If the deal is completed, Kotick will be more likely to resign.
It is expected Microsoft will close the deal in its fiscal year 2023. Nevertheless, government regulators have signaled a tendency to be far more aggressive when evaluating significant acquisitions, especially in the technology industry, so there is a risk that the deal could collapse during government review.
The gaming strategy of Microsoft has become increasingly aggressive over the last few years. In 2014, Microsoft paid $2.5 billion to acquire Minecraft maker Mojang, and in 2017, it acquired Bethesda for $7.5 billion.
Microsoft is also building technologies to create a virtual world called the metaverse, directly competing with Meta (formerly Facebook).
During the months before Mark Zuckerberg’s company, Meta, Microsoft CEO Satya Nadella publicly acknowledged the value of the metaverse. It is likely that virtual worlds will expand to cater to other demographics shortly and will someday replace a lot of traditional social networking activities online.
“On a call to discuss the agreement, Microsoft CEO Satya Nadella emphasized that there will be no centralized hub for the metaverse. So Nadella envisions a future where many software makers will develop numerous virtual worlds, rather than just one dominant company controlling most of it.
To fulfill the vision of the metaverse, Microsoft has yet to develop an affordable, consumer-grade virtual reality headset. As well as the HoloLens headset, Microsoft offers a version of augmented reality that paints digital objects over the real world. However, most business applications use it, as it’s not a fully immersive experience.
Kotick, who spoke with CNBC’s Becky Quick on “Squawk on the Street,” said the deal began to come together after Microsoft realized it had the technology to help push Activision forward in the largely unregulated metaverse development market. Spencer noted that a potential acquisition between the companies began to be discussed late last year.