By Emily Bary
Microsoft Corp. plans to acquire Activision Blizzard Inc. in its largest deal yet as it looks to boost its gaming business and capture opportunities in the metaverse.
The technology giant announced Tuesday that it would purchase the videogame publisher for $95 a share in an all-cash transaction that values Activision at $68.7 billion . The per-share bid represents a 45% premium to Friday’s closing price of $65.39.
The deal is Microsoft’s /zigman2/quotes/207732364/composite MSFT +0.47% largest at more than double the value of its $26.2 billion merger with LinkedIn that was announced in 2016 .
Activision shares /zigman2/quotes/200717283/composite ATVI +0.45% are up 27% in morning trading Tuesday, while Microsoft shares are off 0.2%.
Microsoft said in a press release that it will become the third largest gaming company in terms of revenue, behind Tencent Holdings Ltd. /zigman2/quotes/207908563/composite TCEHY -0.40% /zigman2/quotes/204605823/delayed HK:700 +0.36% and Sony Group Corp. /zigman2/quotes/208567357/composite SONY +1.06% /zigman2/quotes/201361720/delayed JP:6758 +2.13% , after the transaction is complete. Microsoft is already the operator of Xbox and it 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 development of metaverse platforms,” Chief Executive Satya Nadella said in the release. The metaverse is a hot topic right now in the technology industry as companies envision new virtual worlds in which people will connect.
Read: Why Microsoft could be ‘extremely well-positioned’ for metaverse success
Microsoft plans to launch Activision Blizzard titles into its GamePass streaming service, which it says has more than 25 million subscribers. Activision Blizzard makes “Call of Duty,” “Overwatch,” and other popular games.
Activision’s embattled chief executive Bobby Kotick will stay on as the head of Activision Blizzard and report 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 could prompt questions around regulatory approval and the potential synergies between Activision and Xbox, he thinks “the early read on this should be positive from a MSFT [Microsoft] point as this brings scale to MSFT’s gaming efforts and creates a ‘third leg’ to the growth story to complement Azure and [Office365].”
Prior to the deal announcement, Activision shares had declined more than 37% from their 52-week high, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.11% has rallied about 19% over the same time.
Oppenheimer analyst Martin Yang called the deal “one of the better outcomes for ATVI [Activision] shareholders,” in part because it “provides the potential cultural change that ATVI expects.” He also predicted that the pace of large deals could ramp up “among other big tech platforms, large private gaming companies, and leading AAA video game publishers.”
Shares of fellow publisher Electronic Arts Inc. /zigman2/quotes/206954087/composite EA -0.92% are up 6.5% in Tuesday trading and on track for their largest single-day percentage gain since March 26, 2020, when they gained 10.7%, according to Dow Jones Market Data. Shares of Take-Two Interactive Software Inc. /zigman2/quotes/204008930/composite TTWO +0.68% are up 4.1%, while shares of Ubisoft Entertainment SA /zigman2/quotes/200990331/delayed FR:UBI -1.90% rose about 11% in France.
The merger news comes during an eventful stretch for the gaming industry, after Take-Two announced plans to purchase mobile-gaming company Zynga Inc. for $12.7 billion last week.
Microsoft also cheered opportunities in mobile gaming when discussing its Activision acquisition. The company noted in its press release that “nearly 95% of all players globally [enjoy] games on mobile” and that Activision’s mobile business “represents a significant presence and opportunity for Microsoft in this fast-growing segment.”
The company expects the deal to close in fiscal 2023 and be accretive to adjusted earnings per share.