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Microsoft buys Activision Blizzard for nearly $ 70 billion

SEATTLE - Microsoft plans to buy the powerful but troubled video game company Activision Blizzard for nearly $ 70 billion, its biggest deal ever and one that puts a big bid on people wanting to spend more and more time in the digital world.

The blockbuster acquisition announced on Tuesday would throw the company into a leading position in the $ 175 billion dollar gaming industry. Games on virtually every type of device, from large consoles to smartphones, have gained even greater popularity during the pandemic. Technology companies are swarming around the industry, looking for a greater share of the attention and money from the world's three billion players.

In an industry driven by large franchises, Activision makes some of the most popular titles, including Call of Duty and Candy Crush. Yet in recent months, the company has been embroiled in a staff riot over allegations of sexual harassment and discrimination.

Microsoft formulated the agreement as a strengthening of the company's hand in the so-called metaverse, the burgeoning world of virtual and augmented reality. The metaverset has attracted huge amounts of investment and talent, though so far it is more of a buzzword than a thriving business. Facebook renamed its parent company Meta late last year to underscore its commitment.

But the focus on the futuristic metavers contradicts the significance of the deal today: The acquisition helps Microsoft win over its rival Sony in the long-running battle for players' attention and wallets by offering top titles. It also helps the software giant stay ahead of strong newer competitors in games like Amazon and Google.

Phil Spencer, CEO of Microsoft's gaming business, said that no matter what the meta-verse ends up being, "games will be at the forefront of making it mainstream." For now, he said, the acquisition is about getting a stronghold in mobile gaming, where Microsoft hardly competes, and a studio that produces hugely popular games. He called Call of Duty "one of the most amazing entertainment franchises on the planet."

Federal regulators may give cause for concern over the acquisition, as both Democrats and Republicans have been pushing to limit the power of the technology giants. On Tuesday, the Department of Justice and the Federal Trade Commission announced a new effort to expand how to determine whether agreements are anti-competitive.

Microsoft is valued at more than $ 2.3 trillion, second only to Apple. The acquisition of Activision would make Microsoft the world's third largest gaming company in terms of revenue, after Tencent and Sony, the company said. Microsoft now makes Xbox consoles and owns studios that produce hits like Minecraft.

The gaming industry has consolidated rapidly. One force behind it - and one that could capture regulators' attention - is the arms race over exclusive content. Microsoft sometimes makes the games it owns available only on its own devices, such as its Xbox console, and unavailable on those made by competitors, such as Sony's PlayStation.

When asked whether Activision games like Call of Duty would be exclusive to the Xbox, Mr. Spencer only says that "our goal is to allow the content to reach as many players as possible."

Microsoft has been looking for ways to spend its huge liquidity reserve - more than $ 130 billion - on expanding its consumer business. It has been looking at acquiring the thriving social network TikTok and the popular chat app Discord.

In Activision, which faces allegations that executives ignored sexual harassment and discrimination, Microsoft found a target under stress. The allegations have weighed on Activision, and its shares have fallen 27 percent since California sued the company in July over the claims.

The game maker's shares rose more than 25 percent in trading on Tuesday. Microsoft shares fell 2 percent.

The deal can be seen as a victory for Bobby Kotick, Activision's longtime CEO, whom some critics had tried to force beyond the controversy. Mr. Kotick negotiated a big investor premium - Microsoft pays $ 95 per share. share, about 45 percent above his company's share price before the announcement, though only slightly more than the trading price before the scandal broke.

Mr. Kotick will remain in its role until the agreement is finalized. Then the expectation is that he will resign as CEO, even though he could go into an advisory role, according to two people with knowledge of his plans, who would only speak anonymously because the conversations were private.

The controversy at Activision began last summer when a California employment agency sued the company for accusations of promoting a toxic workplace culture in which women were routinely sexually harassed and discriminated against. In the ensuing months, employees staged protests, launched social media campaigns and urged leaders to resign.

Some top executives at Activision left, including J. Allen Brack, the head of the Blizzard Entertainment subsidiary, and the company pledged $ 250 million to increase employee diversity, saying it would strengthen anti-harassment policies. But when The Wall Street Journal reported in November that Mr Kotick had known for years about allegations of harassment against employees and in some cases had not taken action, the calls for his resignation only grew.

Making an agreement with Activision is something of a focal point for Microsoft, which as recently as November questioned the company's culture. In an email to Xbox employees, previously reported by Bloomberg and confirmed by the company, Mr. Spencer in November that he was "disturbed and deeply concerned about the horrific events and actions" at Activision. On Tuesday, he showed up with Mr Kotick to praise the deal, and Mr Kotick said he felt the two companies had "similar values ​​and think of our cultures in the same way."

Mr. Spencer said Microsoft "sat down with Bobby and the team and looked at the plan they have in place," adding that corporate culture was always an ongoing work. "We are very supportive of the progress he and the team are making."

Current and former Activision employees, who have led the way in getting the company to reform its culture, did not believe the acquisition was likely to bring about change in the short term, especially as the sale could face a lengthy review by regulators.

The deal could take 12 to 18 months to close, Mr. Spencer.

"We will continue to fight for improvement and emphasize proper employee representation," said Jessica Gonzalez, a former Activision employee and one of the organizers of the ABetterABK activist movement. She added that "this does not change anything."

Gaming companies floating with cash since the pandemic increased industry profits have consolidated rapidly. The previous record for the biggest merger in the gaming industry was set last week when Take-Two Interactive, the creator of games like Grand Theft Auto, announced plans to buy mobile game publisher Zynga for more than $ 11 billion.

Last year, Electronic Arts and Take-Two participated in a bidding war over Codemasters, a racing game company that eventually went to EA for $ 1.2 billion. Microsoft made another splashy purchase in 2020 when it bought ZeniMax Media and its line of gaming studios for $ 7.5 billion.

Activision itself was a product of serial deal-making by Mr. Kotick through decades, rolled up smaller game studios. It took shape in its current form when Activision - then primarily known for producing titles for traditional game consoles - agreed to combine with the gaming unit from French Vivendi to expand to multiplayer online games like World of Warcraft.

Activision later acquired King, the European gaming company behind Candy Crush, to expand into mobile gaming. King produced $ 1 billion in operating profit over the past 12-month period.

"Scale is really a huge advantage in the gaming world," said Hope Cochran, King's former CFO, who is now CEO of Madrona Venture Group. "You want to build a community, and you need enough people to build it."

Activision's game effort meets headwinds. Players panned the latest Call of Duty release, and releases of titles like Diablo and Overwatch have been delayed. Still, Activision remains quite profitable, reporting $ 639 million in profits in its most recent quarter.

Mr. Kotick characterized the agreement as a calculation that Activision did not have the tools to keep up with major technology companies such as Google, Apple, Amazon and Tencent in the rapidly evolving gaming landscape.

"We realized it was going to be an increasingly competitive world with resources that we just did not have," he said.

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