It is an unprecedented operation. The biggest purchase in video game history. Microsoft will pay a lump sum of 68.7 billion dollars to take over Activision Blizzard, at a rate of 95 dollars per share (about 45% above the current price). After this operation, Microsoft will be the third largest video game company, only surpassed by Tencent and Sony. Of course, the size of the company led by Satya Nadella goes much further.
A purchase of these dimensions does not materialize overnight. Before that, it must go through the reviews of the different regulatory bodies, who could decide that the purchase is against competition laws and even get to block it.
Here we explain the process announced by Microsoft to close the incorporation of the 10,000 employees of Activision Blizzard, integrate its mythical franchises such as ‘Warcraft’ or ‘Call of Duty’ and take advantage of all the strength of the purchased company to become the great rival to beat within the video game sector.
The enormous power of Microsoft will attract all eyes of regulators
Microsoft is a clear example of ‘Big Tech’. One of those technology companies so big that even governments are unclear to what extent they can regulate their continued growth. As we have seen in recent transactions such as NVIDIA’s with ARM, regulators can brand the purchase as anti-competitive, which in practice means that the integration between the two companies cannot be carried out officially.
Activision Blizzard’s is the largest purchase of Microsoft in its history. In September 2020, the purchase of Bethesda with franchises such as ‘Doom’ or ‘Fallout’ for 7.5 billion dollars surprised many, but it has suddenly been dwarfed. Outside of the video game industry, Microsoft has been very active in buying up large companies. But nevertheless, the fact that the acquired companies were from different sectors has allowed Microsoft to obtain the approval of the regulators.
In April of last year they spent 19.7 billion dollars on Nuance (voice recognition), in 2018 they bought Github (development) for 7.5 billion dollars and in 2016 they bought LinkedIn for 26.2 billion dollars, to date the most company big. The acquisition of Activision Blizzard is twice as much as your previous largest purchase.
Despite the enormous amount of money invested, we knew that Microsoft had enough reserves to face an operation of this caliber. In February 2021, the Financial Times reported a deal to buy Pinterest for $51 billion. Months later there was talk of Discord for about 12,000 million dollars. But perhaps the unrealized operation that gave the most talk was that of TikTok. A failed purchase that Microsoft’s CEO himself defined as “the strangest thing I’ve ever worked on in my life.”
Anticipating potential organizational issues, from Microsoft they have already announced how the structure of Activision Blizzard will remain within Microsoft. Bobby Kotick will be below Phil Spencer, CEO of Microsoft Gaming and Xbox boss.
Microsoft explains that the transaction is subject to regulatory review and Activision Blizzard shareholder approval, who must give their approval once the board of directors of the two companies has approved the operation.
The planned schedule is that the agreement closes in June 2023. Until then, the two companies will continue to operate independently (although it is not ruled out that they reach multiple agreements). 18 months to definitively approve a purchase that affects thousands of people and where organizations from dozens of different countries will intervene.
For the operation they have Goldman Sachs as financial advisor. Among the multiple legal notices that Microsoft makes is the fact that all these plans are subject to change, from the shareholders of Activision Blizzard rejecting the agreement to the occurrence of unforeseen events or difficulties in the integration of equipment or technology. All the details have already been transferred to the SEC on FORM 8-K.
The size of the video game industry and the metaverse as arguments to receive approval
With the own statement of the operation, Microsoft has already begun to put on the table some arguments to justify the purchase before the regulators and that the competent organisms do not put hits to them.
Microsoft’s first argument is that the video game industry is the largest in the world of entertainment, with rapid growth and a market value of 200,000 million dollars. Under that context, Microsoft will continue to be one more rival among the largest, but still with competition by other companies such as Tencent or Sony. Microsoft conveys the idea that the world of video games is so big, that there is enough room for everyone.
Some data to support this version is that in 2021 there were 64% more video games presented than in 2020 and that 51% of players in the US spend more than 7 hours a week playing through the different channels. There are currently 3,000 million players and they expect it to grow to 4.5 billion players. A considerably larger number than the 100 million Xbox gamers or the 400 million active monthly players who have Activision Blizzard games.
Figures that Microsoft highlights in its purchase statement and will presumably be offered to regulators as an argument that even after the purchase, Microsoft and Activision Blizzard continue to have a relatively small percentage of the video game industry.
The bet on mobile games It is another aspect with which Microsoft can defend the purchase. 95% of gamers also play on mobile and the purchase of Activision Blizzard and franchises such as ‘Candy Crush’ will allow them to strengthen an area where until now they did not have a large presence.
The entertainment aspect is also a sector where Microsoft did not have a dominant position. Franchises like ‘Warcraft’, ‘Call of Duty’ or ‘Diablo’ are very recognizable and could allow Microsoft promote audiovisual content based on them.
The last argument is that the purchase of Activision Blizzard will serve to “provide building blocks for the metaverse”, according to Microsoft itself. A new booming sector that this purchase would supposedly help, introducing users to those virtual worlds through games. What does this have to do with regulatory approval? It’s basically a attempted justification that the “battleground” is wider and one where Microsoft has multiple competitors.
Image | Jae C. Hong (AP)