Microsoft is buying Activision for $68.7 billion in cash

Microsoft announced Tuesday that it will buy video game giant Activision Blizzard in a $68.7 billion cash deal.

Activision’s shares rose about 31% Tuesday morning following the news. Microsoft shares fell nearly 2% following the announcement. This would be Microsoft’s largest acquisition to date, followed by its 2016 purchase of LinkedIn for $26.2 billion.

Activision, known for popular games like Call of Duty and Tony Hawk’s Pro Skater, has been mired in controversy over the past few months following reports of sexual misconduct and harassment among the company’s executives. On Monday, Activision said it had fired dozens of executives following an investigation.

Under the terms of the agreement, Activision CEO Bobby Kotick, who has been asked to step down because of cultural issues at his company, will remain CEO during the transition. Microsoft said Activision as a company will report to Microsoft’s Xbox boss Phil Spencer after the deal closes, meaning Kotick could depart after the transition. Microsoft said it expects to close the deal in fiscal 2023.

Microsoft has become more aggressive with games in recent years. In 2014, Microsoft bought Minecraft maker Mojang for $2.5 billion. And last year, Microsoft completed a $7.5 billion acquisition of games maker Bethesda.

The deal also adds to a long-term vision for Microsoft as it competes with Meta (formerly Facebook) in developing technology to create a virtual world called the Metaverse. In fact, Microsoft CEO Satya Nadella was the first big tech CEO to publicly acknowledge the value of the metaverse, months ahead of meta CEO Mark Zuckerberg. Today, virtual worlds are dominated by gaming, but the hope is that they will expand to serve other demographics and replace many traditional online social networking activities.

“As we think about our vision of what a metaverse can be, we believe there will not be a single, centralized metaverse,” Nadella said on a call Tuesday morning to discuss the deal. That means Nadella sees an opportunity for many software makers to create many different virtual worlds in the future, rather than having one dominant company controlling the bulk of activity.

Still, Microsoft doesn’t yet have an affordable consumer virtual reality headset that would be necessary to fulfill the vision for the Metaverse. Microsoft does sell an augmented reality headset called the HoloLens, but this device paints digital elements onto the real world. It is not a fully immersive experience and is primarily used for business applications.

In an interview with CNBC’s Becky Quick on “Squawk on the Street,” Kotick said the deal came after he realized Microsoft had the technology to power Activision in the burgeoning competition between tech companies to build the metaverse. In the same interview, Spencer said talks about a takeover between the two companies began late last year.

announced plans to acquire Activision Blizzard Inc.

Courtesy: Microsoft Inc.

However, both companies focused on the present when announcing the deal, with a highlight on Activision’s strength in mobile gaming. For example, Activision owns Candy Crush, one of the most popular and lucrative mobile games out there. (Activision bought Candy Crush’s publisher King for $5.9 billion in 2016.) They also highlighted an opportunity to market popular gaming franchises from both companies, like Microsoft’s Halo and Activision’s World of Warcraft.

“The past two years in particular have shown the importance of games in helping people maintain a sense of community and belonging, even when separated,” Nadella said on a conference call Tuesday morning after the deal was announced. He added that 3 billion people play video games around the world, an indication of the overall market he sees Microsoft entering.

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