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Microsoft’s offer for Activision sets scene for blockbuster year for M&A in gaming

Take-Two Interactive Software said it will buy Zynga in a deal valued at $11bn

Activision Blizzard reported earnings and revenue that missed analysts' estimates just weeks after Microsoft announced its $69 billion (€60.33m) acquisition of the video game publisher.

Adjusted revenue fell 18 per cent to $2.49 billion in the fourth quarter, Activision has said. Analysts had expected $2.84 billion while adjusted earnings per share were $1.25, compared with analysts’ forecasts for $1.31.

The company cited "lower than expected performance" in its Activision division, which produces Call of Duty. Microsoft swooped in at a crucial time for Activision, which is behind hit games such as Candy Crush and World of Warcraft. The company, based in Santa Monica, has been rocked by allegations of sexism and harassment, highlighted in a lawsuit from California's Department of Fair Employment and Housing last July.

The controversy caused executive-level shake-ups and broad discontent among employees. Some 2,000 workers have signed a petition to remove chief executive officer Bobby Kotick after the Wall Street Journal reported that he was long aware of some of the allegations of sexual misconduct at the company, and neglected to inform the board.


Three employee walkouts and the beginnings of union organising – at Activision Blizzard and subsidiary game studio Raven Software – have punctuated six months of persistent upheaval among a swathe of developers. Kotick has apologized publicly for the behavior reported at Activision Blizzard and has promised to make the company a more inclusive place to work. "As we look to the future, with Microsoft's scale and resources, we will be better equipped to grow existing franchises, launch new potential franchises and unlock the rich library of games we have assembled over 40 years," Kotick said in the statement.

Microsoft’s offer may have been a saving grace, analysts said, given that the cultural turbulence and ensuing attrition has taken a toll on the company’s ability to stick to its game release schedule.

Already Activision has delayed the highly anticipated titles Diablo IV and Overwatch 2 to 2023 or later. Diablo Immortal is expected to be released early this year, although there is no set date yet. The turmoil also contributed to Microsoft's move to purchase Activision, whose stock had plunged. Xbox head Phil Spencer, now chief executive of Microsoft Gaming, approached Kotick late last year. Kotick, who has headed the company for 30 years, is expected to continue as chief executive until Microsoft's acquisition closes, which could take until mid-2023 as the US Federal Trade Commission and other regulators review the deal. Kotick said in an interview with Bloomberg last month that the deal had nothing to do with the controversy surrounding Activision or the pressure on him as chief executive. The merger also gives analysts something more positive to focus on, rather than Activision Blizzard's fundamentals, which, right now, are shaky.

Microsoft plans to incorporate Activision Blizzard's treasure trove of games into its Game Pass subscription service, which boasts 25 million subscribers. The deal also gives Microsoft a boost in mobile gaming with Activision Blizzard subsidiary King, developer of hit game Candy Crush, which was acquired by Activision in 2015 for $5.9 billion. Revenue in Activision's mobile games division rose 18 per cent in the quarter, reflecting solid growth in net bookings in Candy Crush and Call of Duty Mobile. Net bookings, a measure of sales of virtual goods and licensing fees, in Call of Duty Mobile "grew strongly" in 2021, driven by demand from China. Worldwide spending on the title exceeds $1 billion, Activision said. Candy Crush in-game spending grew 20 per cent from a year earlier, making it the top grossing game franchise in US app stores.

This year is already shaping up to be a blockbuster year for mergers in the gaming industry, with acquisition activity in the sector hitting an all-time high in the first month. In addition to Microsoft's offer for Activision, Take-Two Interactive Software said it will buy Zynga in a deal valued at $11 billion. - Bloomberg