Microsoft to acquire Activision Blizzard in $68.7 billion deal

By Jennifer Korn and Clare Duffy, CNN Business

Microsoft on Tuesday announced plans to acquire Activision Blizzard in a blockbuster deal worth nearly $70 billion. It’s one of the biggest acquisitions in the tech industry in recent years, one that will boost Microsoft’s standing in the growing gaming industry but could be complicated by recent concerns about Activision’s toxic culture.

The all-cash transaction is valued at $68.7 billion, and Microsoft says it will make the company the third-largest gaming company by revenue, after Tencent and Sony.

Bobby Kotick, the controversial CEO of Activision Blizzard, will continue in his role, according to a press release detailing the announced acquisition. Activision employees had previously staged walkouts and called on Kotick to step down for having allegedly been aware of widespread harassment and discrimination problems at the company for years.

California’s Department of Fair Employment and Housing filed a lawsuit against Activision Blizzard in August 2021 alleging a “frat boy” work culture that subjected female employees to discrimination, sexual harassment and unequal pay. It further alleged that “the company’s executives and human resources personnel knew of the harassment and failed to take reasonable steps to prevent the unlawful conduct, and instead retaliated against women who complained.”

J. Allen Brack, Activision’s then-President, left his post following the allegations, and Activision hired an outside firm to investigate, taking cues from other corporate scandal-ridden companies like Uber.

Activision Blizzard also agreed to an $18 million settlement in September in response to a separate lawsuit from the US Equal Employment Opportunity Commission. That suit had accused the company of subjecting female employees to sexual harassment and retaliating against them for complaining about harassment, and alleged it had “discriminated against employees due to their pregnancy.”

The news follows several months of reporting about allegations of inappropriate workplace behavior by Microsoft founder and former CEO Bill Gates in the company’s earlier years. Microsoft CEO Satya Nadella said last year that the company’s culture had evolved since then, and emphasized its focus on diversity and inclusion.

“We believe that creative success and autonomy go hand-in-hand with treating every person with dignity and respect. We hold all teams, and all leaders, to this commitment,” said Phil Spencer, Microsoft Gaming CEO, in an official statement Tuesday. “We’re looking forward to extending our culture of proactive inclusion to the great teams across Activision Blizzard.”

The agreement is pending regulatory review and Activision Blizzard shareholder approval, with the deal set to close in 2023. The companies will continue to operate independently until the transaction is finalized, after which Activision Blizzard will report to Spencer. Activision Blizzard’s stock shot up more than 30% ahead of the market open Tuesday morning; Microsoft shares fell around 1.5%.

Gaming has become a major point of focus for Microsoft in recent years, especially as the pandemic meant more people were staying home and using gaming systems. In January 2021, on the heels of huge demand for its Xbox Series X and Series S consoles, Microsoft’s gaming revenue surpassed $5 billion for the first time.

The acquisition would boost Microsoft’s gaming business with the addition of Activision Blizzard games and the nearly 400 million monthly active players that come with them. Microsoft will also acquire Activision’s global game studios and its nearly 10,000 employees, according to the company.

Microsoft’s plans for cloud gaming will be accelerated by the deal, with the company hoping to push the Xbox community onto phone, tablets, laptops and other devices globally. And popular titles from Activision such as “Candy Crush” will improve Microsoft’s position in mobile gaming, too.

“Acquiring Activision will help jump start MSFT’s broader gaming endeavors and ultimately its move into the metaverse with gaming the first monetization piece of the metaverse in our opinion,” Wedbush analyst Dan Ives said in a statement Tuesday.

The metaverse has been hailed as the next big thing for the tech industry — although there’s still a long way to go until such a virtual world is a reality, video games are likely to play a central role.

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Microsoft CEO Satya Nadella in a statement.

The deal could face significant scrutiny both in the United States and abroad from lawmakers and regulators, who have recently been focused on antitrust concerns in the Big Tech industry. While Microsoft has gotten less attention in that respect than fellow tech giants Facebook, Apple, Amazon and Google, the deal could put Microsoft back in the spotlight, as it would make the company an even bigger player in the gaming industry. Microsoft acquired popular game developer Bethesda Softworks‘ parent company, ZeniMax, in September 2020, in a $7.5 billion deal that also boosted its Xbox Game Pass portfolio.

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