Microsoft is banking on the Metaverse with a $69 billion deal for Activision Blizzard

microsoft corp plans to acquire Activision Blizzard Inc. in its biggest deal yet to boost its gaming business and capitalize on opportunities in the Metaverse.

The tech giant announced Tuesday it would buy the video game publisher for $95 a share in a cash transaction that values ​​Activision at $68.7 billion. The per-share offering represents a 45% premium to Friday’s closing price of $65.39.

The deal is Microsoft’s MSFT,
-0.75%
largest at more than double the $26.2 billion merger with LinkedIn announced in 2016.

Activision shares ATVI,
+29.83%
were up 36% in premarket trading on Tuesday, while Microsoft shares fell 1.3%.

Microsoft said in a press release that it will become the third largest gaming company in terms of revenue, behind Tencent Holdings Ltd. TCEHY,
+1.90%

700,
-2.75%
and Sony Group Corp. SONY,
-4.20%

6758,
-0.04%,
after the transaction is completed. Microsoft is already the operator of Xbox and also owns Minecraft.

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the evolution of Metaverse platforms,” ​​Chief Executive Satya Nadella said in the press release. The Metaverse is a hot topic in the tech industry right now as companies envision new virtual worlds where people will connect.

Read: Why Microsoft Could Be “Extremely Well-Positioned” for Metaverse’s Success

Microsoft plans to bring Activision Blizzard titles to its GamePass streaming service, which is said to have more than 25 million subscribers. Activision Blizzard makes Call of Duty, Overwatch, and other popular games.

Embattled Activision CEO Bobby Kotick will continue to lead Activision Blizzard, reporting to Microsoft Gaming chief executive Phil Spencer. Kotick has come under fire for his handling of sexual assault allegations within the company.

Evercore ISI analyst Kirk Materne wrote that while the deal may raise questions about regulatory approval and potential synergies between Activision and Xbox, he believes “early reading of an MSFT should be positive.” [Microsoft] Period, as this adds scale to MSFT’s gaming efforts and creates a “third leg” of growth story to complement Azure and [Office365].”

Prior to the deal’s announcement, Activision shares had fallen more than 37% from their 52-week high, while the S&P 500 index SPX,
-1.29%
has recovered by about 19% over the same period.

The merger news comes during an eventful time for the gaming industry after Take-Two Interactive Software Inc. TTWO,
+2.89%
announced plans to acquire mobile gaming company Zynga Inc. ZNGA,
+1.38%
last week for $12.7 billion.

Microsoft also hailed the mobile gaming opportunity when discussing the acquisition of Activision. The company noted in its press release that “nearly 95% of all gamers worldwide [enjoy] Games on Mobile” and that Activision’s mobile business “represents a significant presence and opportunity for Microsoft in this rapidly growing segment.”

The company expects the transaction to close in fiscal 2023 and be accretive to adjusted earnings per share.

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