Will Microsoft Take Over Activision Blizzard?

Will Microsoft Take Over Activision Blizzard?

For us investors, it was the news of the week. U.S. tech company Microsoft (MSFT) wants to take over games publisher Activision Blizzard (ATVI) for $68.7 billion.

Last Tuesday’s news caused significant shifts on the stock market. While Activision Blizzard shares shot upwards, Microsoft shares initially fell – and also competitor Sony came under pressure.

But let’s take it one step at a time: The planned deal between Microsoft and Activision Blizzard would be the largest takeover in the history of the gaming industry to date. It would make Microsoft the world’s third-largest computer games company in one fell swoop.

What Will Microsoft Accomplish With Activision Blizzard?

Microsoft has been a serious player in the industry for many years with its Xbox game console. But that’s not all. With its “Game Pass” services, the company offers a platform on which users can play a wide variety of games for a monthly fee. This is available via PC, console or, most recently, the cloud. A kind of Netflix for video game fans.

The Xbox Game Pass and PC Game Pass now have a combined total of more than 25 million active subscribers. This business model ensures predictable revenues for Microsoft. For growth to continue, it needs one thing above all: fresh and, above all, exclusive content. That’s why the company has been on a considerable shopping spree in the gaming industry for some time now.

Microsoft Becoming a Gaming Empire

In March 2021, for example, Microsoft swallowed the holding company ZeniMax for $7.5 billion. ZeniMax includes the well-known developer studio Bethesda, which has captivated millions of gamers with game series such as Doom, Fallout, The Elder Scrolls and Wolfenstein.

Following the acquisition of Activision Blizzard, further blockbuster titles with a strong reach are now likely to enrich the “Game Pass” services. Activision Blizzard brings smash hits such as World of Warcraft, Diablo, Overwatch, Hearthstone, Call of Duty and Candy Crush.

These titles have long been established in the gaming industry, and their sequels regularly generate a great deal of interest in the community. Microsoft’s “Game Pass” should therefore gain massively in reach through the planned takeover of the publisher.

The Metaverse Vision

But that is only one side of the coin. The tech company wants much more. In a statement, Microsoft boss Satya Nadella brought the so-called Metaverse into play. This is a kind of virtual sphere in which all participants are networked and interact with each other.

Nadella emphasized that gaming plays a key role in the development of such metaverse platforms. The reason: Millions of people are already networked in the large online games, including those from Activision Blizzard, and they form their own ecosystem. This is the perfect basis for taking this networking to a new level.

Antitrust Watchdogs Will Take a Very Close Look

So for you as an investor, it remains exciting. The deal between Microsoft and Activision Blizzard is expected to be completed in 2023. However, the whole thing is not yet in the bag. Committees in both companies have approved the takeover.

But the authorities may still have something to say about it. Sara Simon, an analyst at Berenberg Bank, expects the antitrust authorities to take a close look at the planned acquisition – especially if Microsoft distributes Activision Blizzard’s titles exclusively via its own services. After all, Microsoft would then have considerable market power.

Back to the Shares

The stock of Activision Blizzard profited significantly on Tuesday. The share temporarily increased by almost 30% to more than $80. This was a boon for the ailing game publisher. The share price had fallen significantly since mid-July 2021 due to a workplace sexism scandal and investigations by Californian authorities.

Microsoft is offering $95 per Activision Blizzard share. That’s a 45% premium over the price before the acquisition was announced. The tech company thus rates the value of Activision Blizzard much higher than the share price indicated. This, of course, creates plenty of enthusiasm among Activision Blizzard investors.

On the other hand, the Microsoft share was hardly able to keep itself steady after the news. It is quite possible that the high premium made investors doubt the sense of the deal. But the upcoming investigations by the antitrust authorities also entail a certain risk.

It should be noted that the Activision Blizzard share had already cracked the $100 mark, at least briefly, before the crash in 2021. So with its offer, Microsoft turns back the clock and brackets out the share price slide.

Is Sony Losing the Console War?

Incidentally, the Sony Group (SONY) share was also affected by the possible deal. It plummeted by around 8% after the announcement. Apparently, the investors of the Japanese electronics company fear that the balance of power between Xbox and PlayStation could shift as a result of the takeover. So far, Microsoft has not been able to overtake PlayStation in the console business in terms of sales figures.

But soon the PlayStation platform could lose attractive titles like Call of Duty. After all, the new Call of Duty: Vanguard is the best-selling game of 2021 in the U.S. And For 13 years now, the Call of Duty series has topped the annual U.S. charts. If Sony were to lose those games, that would probably be a reason for many gamers to buy an Xbox instead of a PlayStation in the future.

Will Microsoft actually take over Activision Blizzard? For now, it remains to be seen whether the deal will be approved.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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