On Tuesday, Microsoft said it’s buying video game publisher Activision Blizzard for almost $69 billion, a price that would narrowly eclipse the richest U.S. tech deal in history. In 2016, Dell purchased EMC for $67 billion. The JDS-SDL deal comes next, followed by IBM’s $34 billion acquisition of Red Hat, which closed in 2019.
Microsoft is still awaiting approval from Activision’s shareholders and from regulators.
For Microsoft, the purchase price is more than double what the 47-year-old company has ever paid. The last acquisition it made was of LinkedIn in 2016 which cost over $26 billion.
At the time of the LinkedIn announcement, Microsoft was valued at about $400 billion, so the purchase amounted to roughly 6.5% of its market cap. Today, Microsoft is valued at around $2.3 trillion and is paying just 3% of its market cap for Activision.
Microsoft is paying Activision investors in cash instead of stock share.
Microsoft’s purchase price is a 45% premium over Activision’s closing price on Friday. The stock fell just 2.4% on Tuesday like many other tech stocks in an overall down day for the market.
The project reflects the excitement around gaming and Microsoft’s potential to expand its presence beyond the Xbox and its existing subscription service called Game Pass.
“The all-cash offer to acquire ATVI for $68.7B represents the largest acquisition in Microsoft’s history but also brings attractive strategic value, particularly within the consumer technology sector where Microsoft has a smaller product portfolio,” wrote Piper Sandler analysts, who recommend buying the shares, in a note after the announcement. “Gaming and advertising represent two segments that combined represent an incremental $1 trillion share gain opportunity for Microsoft longer-term.”
The company is also taking advantage of a regulatory environment that has been pressuring Big Tech but has mostly left Microsoft alone. Executives from Google, Apple, Facebook, and Amazon have seen a hard time from officials who are concerned about advertising, commerce, and mobile data consolidating into too few hands.
“From a regulatory perspective, MSFT is not under the same level of scrutiny as other tech stalwarts (Amazon, Apple, Facebook, Google),” wrote Dan Ives, an analyst at Wedbush Securities, in a report. “Ultimately Nadella saw a window to make a major bet on the consumer while others are caught in the regulatory spotlight and could not go after an asset like this.”
Activision closed 26% on Tuesday at $82.31, or 13% below the agreed acquisition price. That’s an obvious indication that investors aren’t convinced the tie-up will make it to the finish line.