To The Moon

$Microsoft(MSFT)$Announced that it will buy $Activision Blizzard(ATVI)$at a price of $95 per share Jan 18th, after that, the $68.7 billion deal suddenly became the focus of the pan-entertainment and technology circle.

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Microsoft Bought our Game Memories by $68.7 Billion!

Microsoft's $68.7 bln Deal of Activision, Worth It?

Below are 4 questions i would like to bring to you to think about. 

1. What benefits will this deal bring to Microsoft?

$(Activision Blizzard)$ and $(Microsoft)$, two companies in the same industry but with different upstream and downstream positions, Activision Blizzard is a game developer, focusing on content copyright and game operation, Microsoft is a software and hardware platform, providing infrastructure services. The merger is indeed a match made in heaven.

Activision Blizzard has many game IPs including Call of Duty, Diablo, Watchdog Pioneer, StarCraft, Warcraft, Tony Hawke series, etc., and its products are quite extensive for age groups, platforms (mobile, PC, game console) and content themes, so they have hundreds of millions of game groups.

Obviously, this deal can increase Microsoft's sustainable revenue.

Activision Blizzard can bring Microsoft more than $2 billion in revenue and more than $750 million in EBITDA in one quarter. In addition to the revenue originally brought by Microsoft, there may be more "synergies", such as the generation of new games by Activision Blizzard's classic IP, and the reduction of friction costs caused by the reduction of related party transactions between the two companies.

At the same time, from the perspective of market valuation, Microsoft's price-earnings ratio is about 30 times, while Activision Blizzard is 20 times before quoting. Considering the acquisition premium, Activision Blizzard is superior to Microsoft in terms of revenue and profit growth rate and valuation multiple, which is obviously a transaction that can improve Microsoft's valuation.

Of course, more important is strategic significance, Microsoft will gain stronger control over software.

2.Will Microsoft end the competition in the console game industry?

If only from the perspective of console games, users and investors are concerned about the competitive relationship between Xbox and PS. Both of them have tried their best to suppress their rivals' market share through the "monopoly" strategy of game products. But the fact is that the strength of the competitive relationship between the two companies has never allowed either company to win the war completely.

3.Will Microsoft's purchase of Activision Blizzard IP end the pattern of console game market for many years?

According to NPD data, the best-selling video game product in the world in 2021 is indeed Activision Blizzard's Call of Duty: Pioneer, and the Call of Duty series occupies two seats in the overall list.Call of Duty SeriesIt is indeed the hottest video game in recent years, so that in$Sony(SONY)$PS platform is also a bully.From the perspective of "exclusive" strategy, by acquiring Activision Blizzard, Microsoft can make Call of Duty users flow to Xbox platform in the most extreme cases. In doing so, it attracts more users in the short term.

However, in the long run, it will damage the whole console game industry.

Regardless of whether Sony can also buy (or in the form of alliance)$Electronic Arts(EA)$,$Take-Two InteraCtive Software (TTWO) $Such a company, to buy out NFL, 2K, FIFA, such a huge user group, but rigid demand games, to compete.

Monopolizing the platform through IP resources pushes itself to the focus of controversy.What is more important for Microsoft is not to stand on the opposite side of Sony, but to stand on the opposite side of users.Because it is the users who face the dilemma in the end.

Needless to say, if Microsoft Xbox performance is deeply bound with Activision Blizzard, the performance will be homogenized with the game life cycle. If the IP tiger of Call of Duty falls to Pingyang one day, it will be a major blow to Xbox business.

So,What is more important is not the "exclusive" competition in the industry, but how to better open up the overall ecology of the video game business and better connect new technologies.For example, occupy the entertainment center position in the "meta-universe".

Although, what the meta-universe will eventually become is still vague at present. But Microsoft has a better foundation than a pure game platform, a communication platform, or a pure hardware device manufacturer.

4. Is this deal a certainty?

First of all, anti-monopoly investigation is the only way. For any tens of billions of mergers and acquisitions, its antitrust may last for months or even years, becauseIt is not only U.S. regulation that requires approval, but also local regulatory approval in other business-related jurisdictions. Japan's antitrust regulators, for example, will not be able to close the deal if they deny it.

Of course, games are not Microsoft's main business, and Microsoft and Activision Blizzard have different positions in the industry, so the possibility of failing anti-monopoly approval is very low.

In addition, it is not excluded that a third party may come out for another round of quotation. According to media reports, Microsoft began to communicate with Activision Blizzard as early as November last year, and has issued a premium quotation of nearly 40% until now. If a third party makes a higher offer, it may also disturb the current situation. Even if the purpose of the third party is not to really acquire, it may make Microsoft raise the offer again, resulting in additional costs.

However, Sony currently has $16.5 billion in cash on its account, which is obviously far from Microsoft.

In a word, according to the previous acquisition history of Microsoft, there is often a cycle of six months to two years between the announcement of the quotation and the final acquisition, and this cycle is obviously the time cost of the investors of the acquired company.