We could already hear the following words from a Microsoft representative at an Activision conference early last year: "This morning, we announced that we will acquire Activision Blizzard in an all-cash transaction valued at $68.7 billion. This will be the largest acquisition in our history, and we’re investing to create a thriving gaming ecosystem, one where world-class content can more easily reach every gamer across every platform”. This process now appears to be in one of its final stages, but has just been blocked by the Federal Trade Commission (FTC) over monopoly allegations. The first pre-trial hearing will take place on 3 January. Will there be a bigger takeover in the tech giant's history?
A few words about Activision Blizzard
Activision Blizzard (Blizzard) is the world's leading developer of computer and console games. The company was founded in 1979 and is headquartered in Santa Monica, California. The company is known for blockbusters such as the Call of Duty series, World of Warcraft and Crash Bandicoot. It has games for a variety of platforms, including PC, game consoles, mobile devices and personal computers. Activision also has a number of publishers and development studios that produce games under the company's brand.
The company makes money from sales of its games and from in-game subscriptions and microtransactions, where players can buy additional content or services with real money. Activision Blizzard is also actively involved in the development of eSports and organises a number of eSports tournaments and leagues in which many professional players participate. The company also earns money from ticket sales to these events and from sponsorship and advertising deals. In addition to game sales and participation in e-sports, Activision Blizzard also generates profits from the licensing of its branded games and characters, which are used in various products such as toys, clothing and accessories.
Legal problems with the takeover
In January 2022, Microsoft announced the acquisition of the games developer for US$68.7bn (US$95 per share). The company appears to be in a position to complete this acquisition, currently holding USD 107 billion. In order for this to happen, the company needed approval from 16 regulators from various countries.
Source: Conotoxia MT5, Microsoft, Daily
Gaming is an important business segment for Microsoft, as it brought in more than $16 billion in the last year. The acquisition of Activision Blizzard could give the company additional revenue and allow it to hold back the company's games on competing platforms, which could make Xbox a monopoly in the gaming market. For the moment, therefore, the Federal Trade Commission (FTC) has filed a lawsuit to block the acquisition. As the body stated in a release: "Microsoft has already shown that it can and will withhold content from its gaming rivals. Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets."
On this call, Activision CEO Bobby Kotick wrote in an official letter to the company's employees: "This sounds alarming, so I want to reinforce my confidence that this deal will close. The allegation that this deal is anti-competitive doesn't align with the facts, and we believe we'll win this challenge." It seems we will find out more details after the first pre-trial hearing.
The bet Warren Buffett is making
At Berkshire Hathaway's (BerkshireHa) annual general meeting in May, legendary investor Warren Buffett announced that he had purchased a share in the games developer. In his own words: "Occasionally I’ll see an arbitrage deal and do it." The billionaire now owns US$4.47 billion worth of shares, representing more than 7 per cent of the company's stock. If the deal had gone through at US$95 per share, buying at the last closing price, we would have had the potential, as much as 24 per cent profit.
Source: Conotoxia MT5, Blizzard, Daily
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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