Microsoft Acquisition of Activision: What Happens Next?
The acquisition of Activision Blizzard Inc. (ATVI) by Microsoft Corporation (MSFT) for $68.7 billion is the biggest deal in its history and a bold bet on the importance of gaming in its future revenue mix. With its list of successful franchises, Activision Blizzard will provide a healthy boost to Microsoft’s overall revenue going forward. The video game company had sales of $8.7 billion in 2021, while Microsoft reported $15.4 billion in revenue from its games division during the same period.
Key points to remember
- Microsoft’s acquisition of Activision Blizzard could expose the company to antitrust scrutiny from regulators.
- Activision Blizzard CEO Bobby Kotick is expected to leave the company after the merger is finalized.
- Microsoft’s Game Pass subscription service could become an important part of its revenue mix after the acquisition.
But the road ahead is not easy. The tech giant inherits a plethora of problems in Activision. It’s already tackling some – like those related to workplace sexual harassment – and will have to make up the playbook for others as they arise. Here are three things investors can expect once the merger is complete.
Activision CEO Bobby Kotick to leave
Multiple reports, citing unnamed sources, indicate that Kotick, who led Activision for more than two decades, will leave once the acquisition is complete. Chris Spencer, current head of Microsoft’s games division, will become CEO of the new company. The departure of a longtime CEO can make investors nervous. But that may not be the case this time around.
While credited with transforming Activision from a bankrupt company into one of the world’s biggest video game publishers, CEO Kotick came under fire last year after the Wall Street Journal revealed that ‘He was aware of the allegations of sexual misconduct at the company, but failed to report them to his board.
Kotick was one of the highest paid CEOs of a publicly traded company in 2020 with a salary of $155 million. As Activision shares tumbled following the workplace culture controversy last year, Kotick asked the company’s board to cut his salary to $62,500, the amount minimum possible under California law.
However, Microsoft’s 45% premium on Activision stock more than compensated for its sacrifice. Kotick owns 4 million shares, or 0.53% of the company, and Bloomberg estimates it should earn a windfall of $375.3 million once the acquisition is complete.
Microsoft facing antitrust scrutiny
Activision shares jumped nearly 38% on news of the deal, but Microsoft investors remained relatively unenthusiastic about it. In fact, by the end of trading on Jan. 18, they had the company’s stock plummeting nearly 3%. One of the reasons for their lukewarm reception of the deal is the prospect of more extensive antitrust scrutiny. Microsoft has largely escaped censorship even as its tech industry counterparts have faced the wrath of representatives in repeated appearances before Congress in recent years.
But the current deal – a veritable merger of giants that could upend the dynamics of their respective industries – could change that. Already, hours after Microsoft’s announcement, the Federal Trade Commission (FTC) said it was launching a “merger guidelines review.” Former Justice Department antitrust chief Makan Delrahim told the Wall Street Journal that recent actions by antitrust agencies in the United States and abroad against tech conglomerates “suggest that agencies will take a close look at the transaction. “.
Expect fireworks when that happens, analysts say. Gene Munster of Loup Ventures said the deal sets up “drama” and a “collision race” between Silicon Valley and DC
Microsoft’s Game Pass market will grow
Most of Microsoft’s stock price gains in recent years have been driven by investor enthusiasm for its cloud services division, Azure. The Activision acquisition could further cement its importance to the company’s future.
Microsoft says the acquisition will help it “democratize” gaming by providing access to best-selling, otherwise expensive titles through a cloud-based monthly subscription service called Game Pass. According to Microsoft, Game Pass had 25 million subscribers, up 39% from last year.
Research firm Omdia expects the cloud gaming market to reach $12 billion by 2026, up from $3.7 billion last year. With a 60% market share, Microsoft is an undisputed market leader. Piers Harding-Rolls of Ampere Analysis says the acquisition makes it easier for Microsoft to realize its ambition to make games “cheaper” and “more accessible”. Doing so could open up new markets for the company in developing countries, where smartphone and mobile games outsell console games.