To The Moon

It's very rare that an acquisition case makes the share prices of the acquirer and the acquired company are bullish in the capital.

At the close of trading, $Microsoft(MSFT)$ fell 2.4%, better than the 2.6% of $(Nasdaq Compose Index)$, and $(Activision Blizzard)$ rose 25% today. 

Microsoft will acquire Activision in an all-cash deal, instead of  a “stock+cash” deal.

All-Cash Deal V.S Stock+Cash Deal

The all-cash acquisition indicates that the cash-rich Microsoft has Activision in the bag, penditock+cash approach would have resulted in the target company’s rejection because the offer price may change with the acquirer’s stock price falling during the acquisition process (which lasted too long).

In a word, an all-cash acquisition at a 45% premium represents Microsoft’s determination to take Activision Blizzard.

Some stories of Activision Blizzard

The fame of the company Activision Blizzard speaks for itself. No other game company in the world can achieve what Activision does: every game is a hit. From Diablo to World of Warcraft to Starcraft, it's hard for any Gen X to say they didn't play or know an Activision game in their youth.

Despite its fame and games, the company has been having problems in recent years.  The recent company scandals have had a big impact on the company's stock price. But a more serious problem is that Activision Blizzard has been slow to enter the mobile gaming space in the past few years. According to Microsoft, 95% of the gamers in the world use mobile devices, but Activision has been largely unproductive in mobile gaming for the past few years.

At a time when Activision Blizzard's stock price has fallen 40% from its highs, Microsoft is almost playing the role of a white knight. At first glance, Microsoft acquired a problematic game company at a significant premium. But Microsoft's strategic layout is very forward-looking. Even at a 45% premium, the acquisition price is still 10% less than this year Activision’s highest share price.

Three Reasons For Microsoft to buy Activision Blizzard

1. To develop the “metaverse”. American leading technology companies jumped on the "metaverse" wagon at the same time. So did Microsoft. The CEO of Microsoft announced in November last year that Microsoft would move towards "metaverse” layout. The most important TEAMS will also integrate the concept and functions of the "metaverse". To put it simple, metaverse is the world of game--and Microsoft understands this very well.

In the open letter of the acquisition, Microsoft said that this move is for developing the platform of metaverse--”This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.“

2. To promote game streaming services. In its acquisition letter, Microsoft hinted that it would integrate Activision's games into Microsoft's Game Pass.

Game Pass is a game subscription service launched by Microsoft, which means that users can play many games for a fixed subscription fee each month. Microsoft's Game Pass (monthly subscription) now has 25 million users and is one of the most important businesses of Microsoft. In the CEO's performance stock award, the success of monthly subscriptions for Game Pass accounts comprises 5% of his total KPI. 

3. To acquire a good asset before competitors do. Several large technology companies are operating smoothly, but it is very difficult for them to find new growth drivers. If the company wants to have a new business and growth driver, the easiest way is to invest in or acquire another company.

For example, $Amazon.com(AMZN)$ invested in electric car company $Rivian Automotive, Inc.(RIVN)$ (Rivian's share price fell below the IPO price today). After acquision, integration between the acquirer and the acquired company is often difficult, but often better than starting from scratch. Microsoft has launched a big acquisition of Activision under the banner of "metaverse" and "streaming games".

Capital_Insights's opinion:  

It may make $Meta Platforms, Inc.(FB)$, a company that even changes its name for the "metaverse” frenzy. Roblox, which is cheaper than Activision Blizzard, is also a pretty good acquisition target for Facebook. If I were an M&A banker at an investment bank, I would have called Mark Zuckerberg. I wouldn't say "Microsoft bought Activision Blizzard, so you should buy Roblox too". Rather I would say, "If you don't buy Roblox, then I'll call Apple, Amazon, and Google".

$(Microsoft)$ and $(Activision Blizzard)$ are both winners in this acquisition. But other tech giants may lose points in the metaverse competition. And the Gen X that grew up with playing Starcraft may feel sad for the loss of youth.

Have you ever played Activision's games?

What do you think of the acquisition?

Share your opinions in the comment section.