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Microsoft is paying nearly $70 billion for Activision Blizzard, maker of Candy Crush and Call of Duty, to bolster its competitiveness in mobile games and virtual reality technology.
The $68.7 billion all-cash deal will make Microsoft, maker of the Xbox gaming system, one of the biggest video game companies in the world. It will also help it compete with tech rivals like Meta, formerly Facebook, in creating immersive virtual worlds for work and play.
If the deal survives the scrutiny of US and European regulators in the coming months, it could be one of the biggest tech acquisitions in history. Dell bought data storage company EMC in 2016 for around $60 billion.
Activision has been rocked for months by allegations of misconduct and unequal pay. Microsoft CEO Satya Nadella addressed the issue Tuesday during a conference call with investors.
“Our organization’s culture is my #1 priority,” Nadella said, adding that “it’s critical for Activision Blizzard to move forward” on its commitments to improve its corporate culture.
Activision revealed last year that it was being investigated by the Securities and Exchange Commission over claims of workplace discrimination and in September settled complaints filed by U.S. labor regulators. discrimination at work. California’s civil rights agency sued the Santa Monica-based company in July, citing a “frat boy” culture that had become “breeding ground for harassment and discrimination against women.”
Wall Street saw the acquisition as a big win for Activision Blizzard Inc. and its shares soared 25% in trading on Tuesday, offsetting losses in the past six months since the California discrimination lawsuit was filed. Microsoft shares slipped about 2%.
Last year, Microsoft spent $7.5 billion to acquire ZeniMax Media, the parent company of video game publisher Bethesda Softworks, which is behind popular video games The Elder Scrolls, Doom and Fallout. Microsoft properties also include the hit game Minecraft after buying Swedish game studio Mojang for $2.5 billion in 2014.
The Redmond, Washington-based tech giant said the latest acquisitions will help bolster its Xbox Game Pass game subscription service while accelerating its ambitions for the Metaverse, a collection of virtual worlds envisioned as a next-generation game. Internet. With Xbox already having its own game-making studio, the prospect of Microsoft controlling so much game content has raised questions about whether the company could restrict Activision games from competing consoles, although Nadella has promised that the agreement would help people play games “anywhere, anytime and anyhow”. They want.”
According to Wedbush Securities analyst Daniel Ives, the acquisition would push Microsoft past Nintendo as the third-largest video game company by global revenue, behind Playstation maker Sony and Chinese tech giant Tencent.
“Microsoft needed to strike an aggressive deal given its streaming ambitions and metaverse strategy,” Ives said. “They’re the only game in town that can make a deal of this size with the other tech stalwarts under massive tech control.”
Meta, Google, Amazon and Apple have all drawn increasing attention from antitrust regulators in the United States and Europe, but the deal with Activision is so big it will likely put Microsoft in the regulatory spotlight, Ives said. Microsoft is already facing delays in its planned $16 billion acquisition of Massachusetts-based voice recognition company Nuance due to an investigation by UK antitrust regulators.
Microsoft is able to make such a big cash purchase of Activision because of its success as a cloud computing provider. But after years of focusing on bolstering its business customers and products like the Office email suite and other work tools, Ives said Microsoft’s failed 2020 bid to acquire the platform -form of social media TikTok might have “really whetted Nadella’s appetite for doing big consumer acquisition.
The backlash against the deal was immediate from consumer groups.
“Under no circumstances should the Federal Trade Commission and the United States Department of Justice authorize this merger,” Alex Harman, competition policy advocate for Public Citizen, said in a statement. “If Microsoft wants to bet on the ‘metaverse’, it should invest in new technologies, not swallow a competitor.”
White House press secretary Jen Psaki had no comment on Microsoft’s announcement during her Tuesday briefing, but pointed to recent moves by the Biden administration to strengthen enforcement against illegal and anti-competitive mergers.
Founded in 1979 by former Atari Inc. employees, Activision has created or acquired many of the most popular video games, from Pitfall in the 1980s to Guitar Hero and the World of Warcraft franchise. Bobby Kotick, 59, has been CEO since 1991.
Microsoft said it expects the deal to close in its 2023 fiscal year, which begins in July. He said Kotick would continue to serve as CEO. After the deal closes, the Activision business unit would then report to Phil Spencer, who led Microsoft’s Xbox division and will now serve as CEO of Microsoft Gaming.
Kotick survived a number of management shakeups at Activision last year after a series of controversies stemming from allegations of a toxic work culture. A shareholder lawsuit in August said the company failed to disclose to investors that it was under investigation in California and had workplace culture issues that could lead to problems legal.
Activision reached an agreement in September with the US Equal Employment Opportunity Commission to settle the claims that followed a nearly three-year investigation. The agency said Activision failed to take effective action after employees complained of sexual harassment, discrimination against pregnant employees, and retaliation against employees who spoke out, including in dismissing them.
Microsoft has also been investigating its own sexual harassment and gender discrimination practices, launching an investor-requested probe last week at its annual shareholder meeting in November. The company has pledged to release a report later this year on how it handles harassment complaints, including past allegations involving executives such as co-founder Bill Gates.