• Microsoft Corp (MSFT) proposed a US$95.00 per share all-cash takeover of leading game developer Activision Blizzard Inc. (ATVI). The transaction is valued at US$68.7bn, more than double MSFT’s previous largest acquisition of US$26.2bn for LinkedIn.
• The acquisition aims to boost MSFT’s console and subscription gaming business and help it expand into the metaverse.
• The deal is expected to be completed by July 2023 pending regulatory and shareholder approval. Activision’s trailing 12-months revenue of US$9bn represents 5% of MSFT’s revenue and is expected to increase MSFT’s gaming segment revenue by 50%. MSFT’s gaming segment contributed 9% of FY21 revenue. We maintain BUY with an unchanged DCF (WACC 6.2%) TP of US$405.00.

Event

1. The deal. MSFT proposed a US$95.00 per share or US$68.7bn all-cash takeover of Activision Blizzard Inc. It represents a 45% premium to the price per share before the deal was announced. MSFT has US$130bn in cash. The transaction is expected to close by July 2023 pending regulatory and shareholder approval. The transaction has been approved by each company’s respective board of directors.
2. About ATVI. Activision is a leading game developer and interactive entertainment content publisher. Its iconic franchises including Candy Crush™, Call of Duty®, World of Warcraft®, Overwatch®, Hearthstone®, Diablo®, and its lucrative eSports events company, Major League Gaming. Activision has about 400mn monthly active players globally, with games widely available on mobile platforms.

Comment

1. The acquisition aims to boost MSFT’s console and subscription gaming business and help it expand into the metaverse. MSFT’s gaming segment contributed 9% of FY21 revenue and is derived from Xbox console sales and the Xbox Game Pass monthly subscription service which boasts over 25mn monthly subscribers. We believe MSFT will seek to grow the number of monthly paying subscribers through engaging ATVI’s 400mn monthly active players.
2. MSFT will become the world’s third-largest gaming company ranked by revenue, behind only Tencent and Sony. Activision’s trailing 12-months revenue of US$9bn represents 5% of MSFT’s revenue and is expected to increase MSFT’s gaming segment revenue by 50%.
3. The gaming industry, which generates more than US$200bn revenue annually, is the largest and most rapidly growing sector in the entertainment industry. Worldwide over 3bn people play interactive electronic games and that number is forecasted to increase by 50% to 4.5bn by 2030.