Software behemoth Microsoft (MSFT) on Tuesday announced a blockbuster deal to buy video game publisher Activision Blizzard (ATVI) for $68.7 billion in cash. Microsoft stock dipped while Activision stock rocketed on the news.
XMicrosoft said the deal will accelerate the growth of its gaming business across mobile, PC, console and cloud and provide building blocks for the metaverse.
When the transaction closes, Microsoft will become the world's third-largest gaming company by revenue, behind Tencent (TCEHY) and Sony (SONY).
Redmond, Wash.-based Microsoft will pay $95 in cash per share for Santa Monica, Calif.-based Activision. The deal is valued at $68.7 billion, inclusive of Activision's net cash.
Microsoft Stock Dips, Activision Stock Rockets
On the stock market today, Microsoft stock declined 2.4% to close at 302.65. Activision stock blasted 25.9% higher to 82.31.
The deal is Microsoft's largest acquisition ever, topping its purchase of LinkedIn for $26.2 billion in December 2016. It also is the tech industry's largest-ever merger, eclipsing Dell's (DELL) purchase of EMC for $60 billion in September 2016.
Activision owns such video game franchises as "Warcraft," "Diablo," "Overwatch," "Call of Duty" and "Candy Crush." Microsoft makes video games for Windows PCs and its Xbox consoles. Microsoft's game franchises include "Halo," "Minecraft," "Gears of War" and "Fallout."
"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," Microsoft Chief Executive Satya Nadella said in a news release. "We're investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all."
Microsoft expects the acquisition to close in its fiscal 2023, which begins July 1. The transaction is subject to customary closing conditions and completion of regulatory review as well as Activision Blizzard's shareholder approval.
Activision Stock Depressed Amid Workplace Woes
Activision Blizzard Chief Executive Bobby Kotick will continue to lead Activision after the deal closes, Microsoft said. He will report to Phil Spencer, chief executive of Microsoft Gaming. However, the Wall Street Journal reported that Kotick is likely to step down after the merger.
Activision stock has fallen amid reports of a toxic workplace environment at the video game giant. The Wall Street Journal said Monday that Activision has fired or pushed out more than three dozen employees and disciplined about 40 others since July as part of efforts to address allegations of sexual harassment and other misconduct at the company.
Microsoft's purchase of Activision shows that gaming is a "strategic pillar" for the company, Jefferies analyst Brent Thill said in a note to clients. He reiterated his buy rating on Microsoft stock with a price target of 400.
Metaverse Is A Key Reason For The Deal
The emerging metaverse is the likely motivation for the deal, Rupantar Guha, principal analyst at GlobalData's Thematic Team, said in a report to clients.
The acquisition "reflects Microsoft's desire to dominate the metaverse," Guha said. "The company is focused on acquiring both Activision's communities and content — two essential parameters for success in the metaverse."
The metaverse is an immersive, next-generation version of the internet.
"While the metaverse is still largely conceptual, Microsoft's strength in underlying themes such as artificial intelligence, augmented reality, virtual reality, and cloud computing give it a leadership position in this theme," Guha said. "Activision's games will help Microsoft create metaverse experiences and provide an established global consumer base to test and market them."
Microsoft stock has formed a flat base since hitting a record high of 349.67 on Nov. 22.
Meanwhile, Activision stock hit its all-time high of 104.53 in February 2021. It sank to a 52-week low of 56.40 on Dec. 3.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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