Microsoft Corp said on Tuesday it would buy “Call of Duty” videogame maker Activision Blizzard for $68.7 billion in cash, the largest deal in the sector making the Xbox maker the third-largest gaming company by revenue.
“This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse,” Microsoft said in a statement.
In its largest purchase ever, Microsoft will pay $95 a share in cash for one of the US’s biggest gaming publishers, known for titles like Call of Duty and World of Warcraft but which is also grappling with a cultural upheaval over its treatment of women. Activision Chief Executive Officer Bobby Kotick will continue to serve in that role, Microsoft said. Once the deal closes, the Activision Blizzard business will report to Phil Spencer, who heads Microsoft Gaming.
Adding Activision’s stable of popular titles will help Microsoft expand its own offerings for the Xbox console and better compete with rival Sony Corp.’s PlayStation. Activision has a long history with the Xbox. The publisher’s largest franchise, Call of Duty, became successful largely due to Microsoft’s innovative online platform Xbox Live, which allows players to connect for multiplayer matches. Most of Activision’s games are published on Xbox consoles.
Goldman Sachs Group Inc. and Simpson Thacher & Bartlett LLP advised Microsoft while Allen & Company LLC and Skadden, Arps, Slate, Meagher & Flom LLP worked with Activision.
One of the industry’s most legendary publishers, Activision has been mired in controversy for months amid several lawsuits over allegations of gender discrimination and harassment. Kotick, who has led the company for three decades, has been under pressure from employees to resign. The scandal has taken a toll on a company already struggling to adapt to the end of a pandemic-fueled video game boom. In November, Activision delayed two of its most anticipated games and gave a sales forecast for the fourth quarter that fell short of Wall Street’s expectations, sending the shares plunging.
Microsoft’s shares slid about 1.3% in early trading on the news. The bid is a 45% premium on Activision’s closing price Friday. However, it’s a bargain compared with the stock’s performance in the first half of last year, before a sexual bias lawsuit filed by a California state agency in July plunged the company into crisis. The shares hit a high of more than $100 apiece in February and then lost nearly half their value by the end of the year.
The scandal has taken a toll on a company already struggling to adapt to the end of a pandemic-fueled video game boom. In November, Activision delayed two of its most anticipated games and gave a sales forecast for the fourth quarter that fell short of Wall Street’s expectations. Kotick, who has led the company for three decades, has come under pressure from employees to resign in the wake of the ongoing lawsuits and allegations reported in the Wall Street Journal that tie him to reports of mistreatment of women and suggest that he was aware for years of sexual misconduct, including rape, at the company but didn’t report it to the board. Kotick has apologized and pledged to make changes.
Founded in 1979, Activision is home to some of the most popular game franchises in the world, including Candy Crush, Guitar Hero, Skylanders, Destiny, Crash Bandicoot and the Tony Hawk skateboarding titles. Its Call of Duty franchise is particularly notable for its lasting appeal, opening week sales and, increasingly, its reach in Asia. The mobile edition of the game launched in China in December 2020, quickly hitting the top of the download charts. It brought in tens of millions of new fans, “with player investment in the first quarter on par with the rest of the world combined,” the company said in May.
The franchise is arguably Activision Blizzard’s most important business. In 2020, the company’s Activision segment — nearly all of which is Call of Duty — accounted for 55% of the company’s operating profit.
But some of Activision’s games aren’t capturing the zeitgeist the way they once did. In 2021, Baird analysts published a report that revealed searches for Call of Duty and World of Warcraft were down markedly from the prior year, falling 32% and declining 44%, respectively.
Microsoft plans to keep making some of Activision’s games for PlayStation consoles but will also keep some content exclusive to Xbox, said a person familiar with the company’s thinking.
Microsoft has made several acquisitions recently to bolster its roster of games studios. In 2020, it agreed to acquire ZeniMax Media Inc., home to The Elder Scrolls and Doom publisher Bethesda Softworks, for $7.5 billion. At the time, this was Microsoft’s biggest video game purchase ever. Microsoft said the Activision deal will vault it to No. 3 in the industry, behind China’s Tencent Holdings Ltd. and Japan’s Sony.