Microsoft Wants Warner Games, Stock Up 316% since LinkedIn Buy

Microsoft (NASDAQ:MSFT) is in talks to acquire Warner Bros’ gaming unit. Microsoft hopes that the gaming unit will supercharge its Xbox business.

Ruchi Gupta - Author

Sep. 4 2020, Updated 6:51 a.m. ET

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Microsoft (NASDAQ:MSFT) is in talks to acquire Warner Bros’ gaming unit, according to a report from The Information.

AT&T (NYSE:T) owns Warner Bros, which is a component of WarnerMedia. AT&T purchased WarnerMedia for $85.4 billion in a transaction that closed in 2018 despite opposition from the Trump administration. The transaction cost AT&T $109 billion including the uptake of WarnerMedia’s debt.

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In Warner Bros’ business, there’s a gaming unit called “Interactive Entertainment.” The unit’s game titles include “Mortal Kombat” and “Harry Potter: Wizards Unite”.

AT&T wants to sell Warner Bros’ game unit and reduce its massive debt. The telecom and media giant has about $160 billion in debt. Notably, AT&T’s debt ballooned after it purchased Time Warner, which it renamed “WarnerMedia.”

Selling Interactive Entertainment could generate $4.0 billion, according to a CNBC report last month. Microsoft wants to buy the gaming unit.

However, Microsoft isn’t the only company pursuing the unit. Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI), and Take-Two Interactive Software (NASDAQ:TTWO) are also interested in Warner Bros’ gaming business.

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Microsoft needs Warner’s game division

Microsoft will release a new model of its Xbox gaming consoles later this year. The new device is part of the Xbox Series X brand. Sony, Microsoft’s rival in the gaming console business, plans to release PlayStation 5 or PS5 later this year. Therefore, a major clash will likely take place between Microsoft and Sony in the gaming market this year.

According to The Information, Microsoft hopes that Warner’s gaming unit will help supercharge its Xbox business. Specifically, Microsoft wants to bolster Xbox’s game development capabilities. The Xbox team plans to showcase Xbox games during an event on July 23

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AT&T under pressure to sell non-core businesses

Amid Microsoft’s talks for Warner’s game unit, AT&T changed its leadership. John Stankey, who had been in charge of Warner Bros’ parent WarnerMedia, replaced Randall Stephenson as AT&T’s CEO. Stephenson masterminded the purchase of WarnerMedia to diversify AT&T’s business.

Stephenson’s exit came after hedge fund Elliott Management put pressure on AT&T to make certain changes. Elliott Management wants AT&T to drop non-core operations like Warner’s Interactive Entertainment gaming business. The firm also pushed eBay and Twitter for changes.

Microsoft stock has gained 316% since it bought professional networking platform LinkedIn in 2016. So far, Microsoft stock has risen more than 30% this year.


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