The big tech giant Microsoft has steamrolled into the gaming industry after it announced that it would buy the video game publisher Activision for $95 per share, in an all-cash transaction valued at $68 billion (Microsoft, 2022).

Activision, the company behind Call of Duty and World of Warcraft, is just the most recent company being poached by big tech in the gaming industry. Microsoft previously acquired Mojang Studios - the company behind Minecraft -  alongside other gaming studios in an effort to consolidate its space in the gaming industry. These efforts come when Microsoft earns about $5 billion in annual revenue from gaming. 

The deal has come under the ire of various antitrust watchdogs and regulators in the Federal Trade Commission. FTC chairperson Lina Khan argued that the consolidation of companies by big tech gave undue advantage to a handful of firms who would be able to "leverage their dominance in one line of business to gain power in other markets" (McLaughlin, 2022). 

In an interview with the Financial Times, Microsoft CEO Satya Nadella attempted to assuage the surrounding regulatory concerns. Nadella maintained that even after the deal goes through, “ [Microsoft] would be the third-largest company by [gaming] revenue” behind rivals Tencent and Sony (Waters, 2022). Furthermore, Microsoft Vice Chair and President Brad Smith stated that “Microsoft will continue to make… popular Activision Blizzard titles available on PlayStation… and [has] committed to Sony that we will also make [the games] available on PlayStation… into the future so that Sony fans can continue to enjoy the games they love" (Skrebels, 2022). 

Should regulators bar the acquisition from going through, Microsoft would have to pay anywhere from $2 billion to $3 billion in termination fees to Activision. Conversely, if Activision shareholders choose to vote against the merger, the company would be forced to pay Microsoft a termination fee of $2.27 billion (Kilgore, 2022). The expense would be irrelevant to Microsoft, which reported having $132 billion in cash and cash equivalents on its balance sheet in the first quarter of 2022. On the other hand, the fee would be far more burdensome to Activision, which only has $8.6 billion in cash on hand. With such a hefty break-up fee, shareholders in Activision will most likely vote to approve the merger. 

If both the shareholders and regulators allow the merger, Microsoft will complete the deal somewhere between the 2nd and 3rd quarters of 2023.

Works Cited

Kilgore, Tomi. “Activision Blizzard Could Be Paid up to $3 Billion If Microsoft Buyout Deal Is Terminated.” MarketWatch, MarketWatch, 19 Jan. 2022, https://www.marketwatch.com/story/activision-blizzard-could-be-paid-up-to-3-billion-if-microsoft-buyout-deal-is-terminated-2022-01-19.

McLaughlin, David. “Microsoft Deal for Activision to Be Reviewed by FTC in U.S.” Bloomberg.com, Bloomberg, 31 Jan. 2022, https://www.bloomberg.com/news/articles/2022-02-01/microsoft-deal-for-activision-to-be-reviewed-by-ftc-in-u-s.

“Microsoft to Acquire Activision Blizzard to Bring the Joy and Community of Gaming to Everyone, across Every Device.” Stories, 21 Jan. 2022, https://news.microsoft.com/2022/01/18/microsoft-to-acquire-activision-blizzard-to-bring-the-joy-and-community-of-gaming-to-everyone-across-every-device/.

Skrebels, Joe. “Microsoft Confirms Activision Blizzard Will Release Games on PlayStation 'beyond Existing Agreements'.” IGN, IGN, 9 Feb. 2022, https://www.ign.com/articles/micosoft-activision-blizzard-call-of-duty-playstation-sony-nintendo-contracts.

Waters, Richard. “Satya Nadella: 'Being Great at Game Building Gives Us Permission to Build the next Internet'.” Subscribe to Read | Financial Times, 3 Feb. 2022, https://www.ft.com/tech-exchange.