Merger activity remained steady last week with two new deals announced, three deals completed and one deal that terminated.
In our previous Merger Arbitrage Mondays post, we wrote that the largest gaming company acquisition in history was announced when Take-Two (TTWO) announced that it was acquiring Zynga (ZNGA) for $12.7 billion. A week later, Microsoft (MSFT) surprised the gaming industry when it announced that it is acquiring Activision Blizzard (ATVI) for $68.7 billion. Activision shocked the entertainment world in 2011 when Call of Duty: Modern Warfare 3 generated $400 million in revenue within 24 hours of release. This was unheard and far exceeded what most blockbuster movies made several months after release. The release of Call of Duty: Ghosts generated $1 billion in retail sales on its first day in 2013. The first time I wrote about Activision Blizzard was in September 2008 as a way to ride out the recession during the Great Financial Crisis. If this deal goes through, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent, the publisher of League of Legends and Sony, maker of the PlayStation. Through this acquisition Microsoft will end up adding franchises like Overwatch, Call of Duty, World of Warcraft, and Candy Crush to its game library.
(Source: Activision Investor Presentation)
The deal is priced at $95 per share in cash, representing a premium of over 45% to Activision’s closing price before the deal was announced. Activision’s stock had taken a big hit in recent months after allegations of workplace harassment resulted in employee walkouts and several resignations. This deal with Microsoft is as much about fixing the culture at the company as it is about allowing Microsoft to strengthen its gaming presence and enter the metaverse with strong franchises. The deal is subject to clearance from antitrust regulators in the US, Europe and China. The termination fee of $3 billion is likely to compel all parties to get this deal completed.
During a conference call regarding the deal, Microsoft CEO Satya Nadella said,