Daily Archives: January 18, 2022

Microsoft Plans to Acquire Activision Blizzard for $68.7 Billion, Promises Joy and Community

The news that will be dominating the video games headlines this week will be this morning’s announcement that Microsoft intends to purchase Activision Blizzard for, as the headline says, $68.7 billion.

XBox plus Activision Blizzard equals something

That’s it, that’s the joke.

It will also be an opportunity to see which online media sites even understand how public companies work or how the merger dance is performed.  I have already seen headlines and stories that say that the deal is already done.  But if those sites had bothered to even read the official Microsoft press release on the subject, the might have seen:

The transaction is subject to customary closing conditions and completion of regulatory review and Activision Blizzard’s shareholder approval. The deal is expected to close in fiscal year 2023 and will be accretive to non-GAAP earnings per share upon close. The transaction has been approved by the boards of directors of both Microsoft and Activision Blizzard.

The boards can approve what they want, but a lot of people have to get involved before it is done, and even Microsoft is putting the close of the deal out in fiscal year 2023.

The price, which has been reported as being “all cash” is no doubt subject to some performance incentives, so Bobby Kotick and crew will have to keep things going… and likely “solve” their problems with the state of California and their disgruntles employees… if they want the full, big bucks payout.  It isn’t the announced number that matters, it is what the final price is when the deal closes.

Remember CCP?  Pearl Abyss was set to acquire them for $425 million, but the final price ended up being $225 million because CCP fumbled their performance requirements.

As for why this acquisition… well, Microsoft’s biggest problem for the last 25 years has been what to do with the giant pile of money that its twin behemoths, Windows and Office, earn for it every year through almost complete domination of the desktop market.  You can’t just stick it all in a bank account, and for a long stretch tech companies were loathe to pay dividends as they felt they could earn more money by just re-investing.  And while they have had to pay dividends since, or buy back stock to inflate share prices, companies like Apple and Microsoft are still sitting on huge war chests of cash they hold aside for such opportunities.

So Microsoft needed to spend some money and they have been big on XBox and video games of late, so that was the direction they went.  That’s my initial take.  I am not sure if the state of affairs at Activision-Blizzard helped or hurt the idea.

Phil Spencer, head of Microsoft’s XBox group, which owns all video gaming at the company, and who has been publicly critical of Activision-Blizzard’s behavior, will get his chance to run that show as the company will report up into him when acquired.

Microsoft says it wants to bring the joy and community of gaming across all devices, though I am sure the XBox console will be first among equals should a list of devices actually be ranked.

More specifically, the press release says:

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.

Growth and getting into mobile are probably the key items here.  King’s Candy Crush Saga will mean a Microsoft product on a lot of mobile devices.  Nothing about the deal helps along cloud gaming… Micrsoft already has Azure for cloud… the “metaverse” is just a buzzword that makes investors happy but which has no substantial meaning when a company like Microsoft uses it.

No, the reality seems to be Microsoft seeking to bulk up their gaming portfolio and getting deeper into mobile… which makes business sense.  For all of its troubles, Activision Blizzard brings a lot of brand heft with it.

At least they didn’t throw in crypto and NFTs just to get attention.

For those of us who have been paying attention to what has been going on at Blizzard for more than half a year now, the fate of Bobby Kotick seems set; he will be sent packing.

Granted, he will get to walk away dragging a giant sack of money like the goblin he is… sorry, that might be unfair to goblins… but he will still be gone in the end.

Yes, I know the press release says he will stay in place for now, but the deal isn’t done yet and Microsoft can’t send him away until they own his company.  So my New Years prediction about him still being in the company seems secure… even more secure than it was before.  He has just effectively boosted the stock price to $95 a share.  he is a shareholder hero.  Hell, even if the deal falls through Micrsoft might have to pay them $3 billion for the effort.  So if he is still there on December 15th I’ll have made at least one accurate guess… erm, prediction for 2022.

In 2023 though, if the deal goes through, he is out for being as useful as a nipple on a bull in the Microsoft organization. (Available as needed I guess, which means he’ll probably have to stay on the shelf somewhere rather than jumping in to form a competitor.)  Until then though he has to make sure the company performs, so I am still looking forward to that Q4 2021 earnings call next month.

Anyway, lots of people have been writing up wildly inaccurate assessments of the deal this morning, obviously having to get to work before their first cup of coffee.  We’ll probably have to wait a few days before somebody somebody finds something truly insightful to say about the proposed deal.  Until then, I have a few links.

Related: