Microsoft Corporation (NASDAQ: MSFT) is set to acquire Activision Blizzard Inc., one of the world’s largest game developers and interactive entertainment publishers. The proposal is for US$95 per share, valuing the transaction at US$68.7 Billion.
As the younger generations get older and become more enveloped in a virtual life where everybody is connected through either a phone, PC or the new metaverse, Microsoft’s acquisition is a power move to become one of the largest companies in the game development industry.
The acquisition will reinforce Microsoft’s Game Pass portfolio with plans to merge Activision games into the Game Pass, making it one of the most diverse and compelling accumulations of gaming content in the industry. The planned acquisition will hand Microsoft some of the most well-known intellectual property licences in the industry, including; Candy Crush, Call of Duty, and World of Warcraft.
“The combination of Activision’s Blizzard’s world-class talent and extraordinary franchises with Microsoft’s technology, distribution, access to talent, ambitious vision and shared commitment to gaming and inclusion will help ensure our continued success in an increasingly competitive industry,” said Activision Blizzard CEO Bobby Kotick.
Upon completion of the acquisition, Kotick will step down and report to Phil Spencer, the CEO of Microsoft Gaming.
“Together we will build a future where people can play the games they want, virtually anywhere they want,” said Spencer.
Microsoft has been excelling over the last few years, with its financials outperforming peers within the tech sector. Revenue was up 18% to US$168.1 Billion, Operational income was up 32% to $69.9 Billion, Net income was up 37% at US$61.3 Billion and diluted earnings per share was US$8.05, up 40% from the previous financial year.
This proposal is the largest cash takeover during the coronavirus pandemic and will make Microsoft Gaming the world’s third-largest gaming company, behind Sony and China’s Tencent Holdings.
After Satya Nadella, the CEO and Chairman of Microsoft failed to acquire social video platform TikTok, Pinterest Inc. and Discord Inc., those failings made him more determined to land this deal with Activision Blizzard because it fits in perfectly with his corporate strategy to unite cloud, content and creators. Being able to bring all of Activision’s audience and content under his watch, means the future of Microsoft will likely be prodigious. The deal is expected to be finalised before the end of FY23.
The tech sector is selling off heavily at the moment on the back of fears that the Fed will announce increasing interest rates. This selling could continue in the short term as we have seen with Microsoft’s share price. With this in mind, Microsoft presents a potential upcoming opportunity to buy for a long-term hold once the selling finds its bottom. We will be looking for certain technical signals for buying an entry. Our proprietary scoring system ranks this stock at 97 out of 100, which suggests that based on financial data this is one of the better stocks to be looking at in the tech sector. Given the value of the acquisition, combined with recent selling in the tech sector, and the bright future ahead for Microsoft, the current price of MSFT may present an opportunity for investors.