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

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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.

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21 thoughts on “Microsoft Plans to Acquire Activision Blizzard for $68.7 Billion, Promises Joy and Community”

  1. Ula

    Ula is not amused by this news. Nonetheless, thank you for explaining the process so clearly. I look forward to the elimination of Kotick if all comes to pass. Do you think we’ll see a ribbon added to the WoW UI? Will the newly revived Clippy make an appearance as well?

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  2. Wilhelm Arcturus Post author

    Ugh, the ribbon UI! Word 5.1a was the last good version of Microsoft Word. It ran fast, had all necessary features, and fit on a 1.4MB floppy. Almost everything since then has been fluff and UI horror shows. (Save as .pdf and .html have some use I suppose.)

    To this day I used this video as a reference as to the Microsoft Way

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  3. Nosy Gamer

    I had to finish my post before coming here to read yours. I wouldn’t be so sure about your *cough* prediction *cough* about Bobby Kotick just yet. Microsoft’s acquisition of Zenimax took a little under 6 months for approval. If the same timeframe applies here, Microsoft will have a couple of months to show Bobby out the door. But honestly, I don’t see Kotick leaving until next year.

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  4. bhagpuss

    NIce piece! I’ve only read the GamesIndustry coverage, which is where I got all my quotes from, and I did expect they’d have the business take on it, given their name, but apparently not. When I read the piece back, they do say “Microsoft has reached a deal to acquire Activision Blizzard” rather than “has acquired” and the Microsoft statement they quote says “Upon close, we will offer as many Activision Blizzard games as we can…”, which does imply a deal that’s less than “done”. The general tone of the piece, even as I re-read it, however, is very much “This is a thing that happened”.

    That said, I’m sure it will happen. Why wouldn’t it? I might even get the GamePass, if they put WoW on it and we can play WoW again without feeling ill.

    The metaverse thing is really starting to bug me. All this talk about “metaverses” is like saying something is “quite unique”. There’s either one Metaverse or none. My understanding is that the Metaverse will be what the World Wide Web evolves into. All these “metaverses” will be part of the big, real Metaverse with a capital M. That is going to happen whether any of them want it or not. It’s cute how they’re trying to claim ownership of a quasi-elemental force.

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  5. Wilhelm Arcturus Post author

    @Nosy – I don’t think 10x the price will take 10x the time, but Zeni looked like a much simpler deal and much less likely to garner regulatory scrutiny. We’ll see. EG7 acquired Daybreak in less than a month from announcement to close.

    @Bhagpuss – Indeed, somebody saying they are building their own metaverse is indicating that they don’t understand what the word means. You can many virtual worlds and as many multiverses as companies care to create, but if there is more than one metaverse then there is no metaverse. But I might been too deep into Raph Koster’s writings.

    In the end it will mean whatever the industry wants it to mean. I remember when microtransactions had a specific meaning, from which we have long departed. And if you asked the guy who invented blogging if I have a blog, he’d say it wasn’t because his “web log” idea was supposed to simply reference your journey on the web and not be some form of public diary or whatever.

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    1. Marathal

      You do have to wonder, did Mike Morhaime have some knowledge that they were considering shopping it around.

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  7. potshot

    The press always gets these things wrong. The boards approve a deal, enter into the agreement and then the deal needs to be approved by at least the target shareholders (and sometimes the acquiror shareholders depending on size and deal structure) and, for deals of this size, Hart Scott Rodino clearance from the antitrust unit of the Department of Justice. That process can be relatively short– perhaps 60-90 days to several years if they have to deal with serious DOJ inquiry.

    I’m less concerned about shareholder approval for this deal. My experience suggests that most public company shareholders are remarkably pliable and compliant. Few deals end up in the kind of HP/Compaq circus simply because public company shareholders who don’t like the deal can simply vote with their feet by selling their shares and moving on. If they like it, they stay and will vote in favor. If they hate it, they sell on the news and move on, so the denominator moves in favor of the proponents. Unless your Bill Hewlett’s family, few have the actual market power or investment in the company DNA to care enough to fight about it.

    How concentrated the market is will determine whether DOJ had major issue or not. I’m going to guess that they’re not going to have too much trouble getting it through. This isn’t Aetna/Humana which would have structurally reduced market competition or the merger of several grocery store chains which regionally can often seek to eliminate competition in a locality (DOJ may condition approvals of those kinds of deals on divesting some of the troubled areas to third parties).

    The games space seems so much more hit driven that almost anyone with the right title can explode on the market and be an attractive addition for any number of big players (or remain independent). And the flipside is true too– All milkcows and golden geese get old and stop producing at some point, so continued market domination is anything but assured.

    The press release is all that’s available at the moment, but both companies will be filing an 8-K in the next few days which should have the actual merger agreement as an exhibit/attachment and they should be preparing the proxy statement to solicit shareholder approval too which will also include the actual merger agreement, summaries of deal points, opinions of financial advisors and a sanitized timeline of deal negotiations. That’s where you’ll find the good stuff.

    I do tend to subscribe to the idea that Microsoft is where good ideas go to die. They have a long history of turning gold into lead, so I’m sure this won’t disappoint on that front.

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  8. Wilhelm Arcturus Post author

    @Marathal – I don’t know, but Mike left in late 2018, which was about when the initial state of California investigation into employee allegations actually began. They only filed a lawsuit publicly last year because Blizz was stonewalling them on changes. I don’t know if the two were related, if Mike got nudged out by the exec board, or if there was some other reason, but the timing does make you go, “Hrmmmm…”

    I am sure he still has some ActiBlizz stock though, so he’ll no doubt benefit from his company being sold yet again. He’s done very well since he sold it the first time back in 94.

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  9. Archey

    As i read the press release, they said it will close in Microsoft’s FY 2023, which ENDS in June 2023, which means it starts in June 2022. So as early as summer is possible.

    I should have written it down somewhere (maybe your predictions post) but I was wondering if someone wouldn’t buy Blizzard or possibly spin it off as a toxic asset but with great IP this year. This news is close enough that I’d have called myself right on that one.

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  11. bhagpuss

    I like that Ed Zitron piece, although I think he goes too far to the other extreme. I’m going to have to post my own understanding of what a “metaverse” is, I think. It’s fairly clear in my mind and it isn’t any of the things anyone sems to be saying it is.

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  12. Pingback: Microsoft to Acquire Activision-Blizzard for $68.7b – Time to Loot

  13. Wilhelm Arcturus Post author

    @Bhagpuss – Ed is very much deep in the NFT wars, and the crypto bros are pushing a line where NFTs are the key to object portability in the metaverse, so his gut reaction is to push back when he sees the word.

    I don’t necessarily jump to “NFTs” when somebody says “metaverse,” because I am not trying to fight for or against the crypto even though I find the crypto/NFT stance on gaming to be somewhat absurd. This is, as I have said, probably a result of me reading too much Raph Koster stuff, though Mark Zuckerberg’s vision of the metaverse doesn’t include crypto by default either.

    I think most of the time I read somebody using the term “metaverse” you could substitute in “virtual world” and be completely correct. The crypto bros don’t care anything about that and their view of the “metaverse” is not a single world but just the ability to move items between worlds, so really doesn’t apply to “metaverse” except that it is a popular word they are trying to piggy back in on.

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  14. Naithin

    This is going to be an incredibly interesting space to watch. Seeing the news in my feed this morning, it was *almost* enough to get me out of bed early to start the post. But not quite. ;)

    I consider Kotick as good as gone at this point, it’ll just be a matter of when.

    I’m now far more interested to see what starts happening with their games and how much reeeing erupts when MS makes the inevitable revelation that future Call of Duty titles will be Xbox and Game Pass exclusives. ;)

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  15. Halum

    So, after the scandal, when Microsoft recently released a statement saying they were “re-evaluating their relationship” with Activision-Blizz, they really meant they were preparing to give them loads of cash. Nice.

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  16. Alexander Wong

    I hope things go well. I don’t see why tech companies are allergic to dividends, that is better than just throwing it away. If I was a shareholder or even customer of Microsoft, I’d prefer dividends, over this particular acquisition, but this is a million times better than pushing crypto or NTFs. I wish it goes well, and maybe it might actually go well. I’m not sure Activision Blizzard is worth $69 billion even if that might have been a fair 2017 price. They have had some internal troubles lately and I fear this could hurt player retention and future revenues, so my view as someone outside the industry might peg it around the $20 billion mark, but I’d be happy if this goes well and I’m proven wrong.

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  17. Pallais

    I doubt Wow will be on the Game Pass any time soon. I don’t see ESO Plus on the Game Pass, so I suspect Wow will also stay off of it. After all, MMO players have shown they’ll pay a separate subscription for a favorite game, so why not continue to milk that extra money. That said, now if MS ends up with two large MMOs they might go the All Access route and put them on Game Pass. Though, if they did, I suspect it would be only on the top end version or a new Game Pass Super Duper Ultimate+! version.

    I do think this will pass regulatory approval. It may take a bit, but given T-Mobile was able to buy Sprint to become the #3 carrier, I can see MS becoming the #3 game developer. (Sony or, especially, Tencent trying to buy Activision-Blizzard would have been a whole other story.) I am curious to see if over the next few years EA or, more likely, Ubisoft start to be considered targets in play as preventative/protective measures. Consolidation mania can be a weird thing.

    I don’t see Kotick lasting long after the acquisition is complete. His ATVI stock will give him a fat payout, plus bowing out once things are settled would give him a face-saving way of exiting the company. (Face-saving from his perspective.) Standard non-competes will keep him quiet, so it will help move ATVI into a more non-bad PR future.

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  18. Shintar

    Certainly interesting news, but to be honest I’m struggling to parse what it will mean for us as the people actually playing the games. Microsoft isn’t exactly known for making the best games nowadays… but at the same time they’re not really known for rocking the boat either? And even if they did, these sort of buyout-induced changes to the way a business operates can take years to really manifest.

    I guess it’s (hopefully) good news for the people at Blizzard struggling with bad workplace culture. This acquisition isn’t going to be a magic bullet, but like you said in a previous post, “company culture” is something that trickles down from the top, and from everything I’ve heard, the people at the head of Microsoft Games sound like a decent bunch, which can only result in improvements at Blizzard from the sounds of it.

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  20. mbp

    This is a very strange time to be a PC gamer. It is an absolute golden age in terms of the quality and value of games available. Epic keeps giving away free stuff and Sony are finally bringing some of their fantastic AAA titles to PC with high quality ports. Microsoft game pass is the greatest deal ever in gaming. Microsoft’s acquisitions are likely to make it even better in the short term and they indicate a real commitment from Microsoft to support gaming on all their platforms including Windows. So from the point of view of games available there has never been a better time to be a PC gamer.

    On the other hand the availability of PC gaming hardware has never been worse. It is so difficult to get a decent gaming graphics card that I could not recommend anybody who doesn’t already have a gaming PC to try to get one today.

    Hopefully the supply shortages will pass but the longer term outlook is also a bit worrying. Are Microsoft going to achieve such a dominant position that everyone else will be squeezed out? It is hard to see a rosy future for Valve and Steam if Microsoft continue to use their bottomless pit of cash to gobble up all the things. I guess I am bit surprised that Valve never tried the subscription model themselves but I think it is too late for them now. Valve don’t have enough first party games or enough cash for third party games to compete with Microsoft. As for poor Epic, I think their cause is now officially hopeless. The plan to compete with Valve by outspending them was optimistic but not completely hopeless. They have no hope of outspending Microsoft.

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