On Jan. 18, Microsoft announced that it will acquire Activision Blizzard (ATVI) for $95 per share. The all-cash transaction valued ATVI at $68.7 billion. The deal values ATVI at a massive premium. ATVI stock soared after the news, while Microsoft stock fell. Microsoft sees gaming as a key growth driver. Did Microsoft try to buy Nintendo as well?
Microsoft announced the ATVI transaction barely a week before its fiscal second-quarter 2022 earnings. We’ll get more details about the transaction during the earnings call.
The Microsoft and Activision merger is the biggest tech deal.
Microsoft’s acquisition of Activision Blizzard is the biggest deal in the tech industry. It's ahead of the 2016 merger between Dell and EMC. Microsoft has been looking to increase its growth and has been focusing on high-growth industries under current CEO Satya Nadella.
In 2016, the company acquired LinkedIn and the acquisition played out well. MSFT stock has also performed well and in 2021 it rose almost 50 percent. Briefly, Microsoft's market cap surpassed Apple and it took the crown as the world’s largest company.
Microsoft is a cash-rich company.
Like fellow big tech companies, Microsoft is also cash-rich. In 2021, it announced a $60 billion share buyback. However, while buybacks help inflate the EPS, they don’t help increase the top-line growth. This is why tech companies are always on the lookout for value accretive acquisitions.
Microsoft and Activision are facing scrutiny.
Microsoft and Activision Blizzard are both facing scrutiny for how they handled workplace issues, especially sexual assault allegations. ATVI stock has been under pressure on reports that CEO Bobby Kotick tried to hide the allegations from the board. Under pressure from stockholders, Microsoft has also hired a third-party agency to study its employee policies.
Microsoft tried to buy Nintendo as well.
With the Activision Blizzard acquisition, Microsoft will become the third-largest gaming company after Chinese tech giant Tencent and Japan’s Sony. Microsoft launched its Xbox in 2001 and it has been in the gaming business for over two decades.
Long before the ATVI deal, Microsoft had its eyes on Nintendo as well. In 1999, Microsoft approached Nintendo about an acquisition. As part of the deal, Nintendo was going to create the games for Xbox.
However, Nintendo wasn’t interested in the deal and if anything, it ridiculed Microsoft for the proposal. Former Microsoft third-party relations head Kevin Bachus told Bloomberg in 2021 that Nintendo executives “just laughed their asses off.” He added, “Like, imagine an hour of somebody just laughing at you. That was kind of how that meeting went."
Microsoft didn't acquire Nintendo.
Microsoft didn't end up acquiring Nintendo. In 1999, while Microsoft was working on its Xbox, Nintendo was also working on its GameCube, which launched in 2001.
Sony was also working on its PlayStation 2, which launched in 2000—a year ahead of Microsoft and Nintendo.
Coming back to the MSFT and ATVI deal, it will help Microsoft grow its gaming business. The deal is expected to close in Microsoft’s fiscal year 2023, which would end on June 30, 2023. The company said that the deal, which is subject to regulatory clearances, would be adjusted EPS accretive from the first fiscal year itself.