Examining the Deal Strategy and Recent Challenges Surrounding the $68.7 Billion Acquisition.
Introduction:
On January 18th, 2022, Microsoft revealed its intention to acquire Activision Blizzard, a prominent leader in game development and publishing. The acquisition deal came at a substantial price of $95 per share, amounting to a total valuation of $68.7 billion. Notably, this offer represented a 37% premium compared to the average share price of Activision as of January 2018. This bold move showcased Microsoft's commitment to expanding its presence in the gaming industry and signalled its willingness to invest heavily in securing influential and established game development companies.
Deal Strategy and Synergies:
Microsoft's acquisition of Activision Blizzard solidifies its position as a major player in the gaming industry. With the addition of Activision Blizzard's vast catalogue of games, Microsoft has significantly expanded its exclusive content offerings, providing a major incentive for gamers to choose Xbox consoles and Microsoft's gaming ecosystem over competitors. The deal also strengthens Microsoft's Game Pass subscription service, which offers access to a wide variety of games for a monthly fee. The inclusion of popular Activision Blizzard titles will undoubtedly enhance the value proposition of Game Pass, attracting more subscribers and boosting revenue for Microsoft.
Moreover, by incorporating Azure's cloud infrastructure, Microsoft can offer access to popular games like Call of Duty and Overwatch without the need for expensive hardware. This move will put Microsoft in direct competition with companies like Nvidia's G-Force in the cloud gaming industry.
Challenges and Regulatory Scrutiny:
As with any major acquisition, Microsoft's deal with Activision Blizzard will face regulatory concerns from major competition and market regulators globally. As of December 2020, Federal Trade Commission (FTC) has blocked the deal and said the deal could ""harm competition in high-performance gaming consoles and subscription services by denying or 'degrading' rivals' access to its popular content.". Furthermore, the EU issued antitrust investigations into the deal but later cleared the deal as of May 2023.
The main challenge for Microsoft is the UK's Competition Markets Authority (CMA), which has blocked the deal over concerns for monopoly power and reduction of competition in the cloud gaming market. CMA issued a statement stating that this deal would extend Microsoft's dominance in the cloud gaming market, which already has a 60% to 70% market share. The CMA further mentioned concerns about the exclusivity of Activision's games on its platform. In repose to this, the firm has signed a 10-year binding contract to bring all of Activision's PC games to G-Force. Activision criticised the UK court's ruling, stated The UK is closed for business, and plans to appeal the decision.
Financial Advisory:
Microsoft has hired Goldman Sachs and Simpson Thacher & Bartlett for financial and legal advice, respectively, to acquire Activision Blizzard. Allen & Company and Skadden, Arps, Slate, Meagher & Flom are advising Activision Blizzard for financial and legal advice, respectively.
Written by: Sagar Bar, Natural Resources Market Analyst at Sora Capital A.C.
Comments