Returns as of 02/18/2022
Returns as of 02/18/2022
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In the largest deal in video game history, Microsoft ( MSFT -0.96% ) announced last month that it has entered an agreement to acquire Activision Blizzard ( ATVI 0.10% ) for $68.7 billion. In this episode of «3 Minute Stocks Updates» on Motley Fool Live, recorded on Feb. 2, host Brian Feroldi and Fool.com contributor Toby Bordelon discuss what this could mean for the tech giant.
Toby Bordelon: Their announcement, they are acquiring Activision Blizzard. You see here Activision, some popular properties there on your right, you may be familiar with if you are a gamer. This deal, here are the terms: $95 in cash, 68.7 billion in a nominal value. That is the largest deal in gaming history. Now, if you take out the cash that Activision has on hand, you get about 59 billion net value, still very large. When this is over, Activision is going to report to Phil Spencer, who is now the CEO of a newly created Microsoft gaming division. They say this is going to close in fiscal year 2023, which for them means June of 2023, that’s when their fiscal year will end. That’s when you expect it to close. It’s going to help Microsoft strengthened this year its Xbox game path, which allows you to stream games, play games on various devices: PC, Xbox, even mobile devices from the cloud. The potential issue here of course is going to be antitrust issues. I don’t think they’re going to be a huge deal. You can see here my take on this. Take-Two is a major player, already they’re doing a deal. They’re still going to be smaller than Sony and Tencent; this is more of a vertical than horizontal integration. But this might be an issue, so it’s definitely something to keep a look out for. That’s Microsoft. Great quarter, lots to like going forward, I think.
Brian Feroldi: I, for one was a little bit taken aback by the deal. First off, it’s huge in absolute terms, but on the flip side, it’s not that big in Microsoft terms despite the fact that it’s a $70 billion deal. But what do you think? Are you bullish on the deal?
Bordelon: I actually am. You’re right, it seems big that Microsoft could actually pay for it, it’s an all-cash deal, they can pay for from cash on hand or from the cash flow they will generate between now and when it closes. Actually, if their cash generation remains the same and they don’t do anything else with their cash, they could pay for this deal at the end of next fiscal year and actually have more cash on hand than they do now. That’s where this fits in into them. But I do like it. I think it actually solves a bunch of leadership problems for Activision. Let’s just put it that way. It lets Microsoft make an even bigger push into expanding this Game Pass subscription program. They are trying to make everything a subscription, everything a service, and it moves them in that direction. I think helps them truly become a leader in game streaming as that starts to develop. We’re seeing a consolidation wave, I think in the game industry. Take-Two buying Zynga, Sony just announced they’re buying Bungie. I don’t think it’s going to stop anytime soon, and Microsoft needs to be a part of that to keep up. I think this deal helps them do that.
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