Win Over FTC Should Allow Microsoft To Close Acquisition of Activision

Senior Equity Analyst

Neil Macker

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Blizzard

King

Activision

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Activision Blizzard is one of the world's largest third-party video game publishers and owns some of the largest and well-known video game franchises, including Call of Duty and World of Warcraft. We believe the firm is well placed to consolidate its leading position by developing compelling new versions of its existing franchises and by introducing new experiences, such as Overwatch. We expect Activision to continue to benefit from ongoing console demand, the ongoing revitalization of PC gaming, and the growth in the mobile market via King. 

Activision Blizzard’s sale to Microsoft remains pending as a few jurisdictions continue to scrutinize the deal. However, recent developments, including a U.S. court’s blocking of a preliminary injunction by the U.S. Federal Trade Commission and Microsoft’s agreement to halt litigation in the U.K. in order to restructure the deal, point to the deal closing in the near future. 

Activision has capitalized on the shift in the industry toward a bifurcated market consisting of major AAA blockbuster titles on one side and smaller indie games on the other side. Activision generally focuses on the higher end of the market, using its capital to fund higher-budget blockbusters and its marketing scale to support its titles across multiple advertising platforms. Activision's primary competition remains other large third-party publishers, such as Take-Two and EA, as well as console manufacturers (and first-party publishers) Sony and Microsoft.

Like its peers, the firm is focused on engaging users beyond the initial game sale via extending the monetization window by expanding the use of multiplayer options and releasing downloadable content. Both methods encourage gamers to hold on to the original game longer than in previous generations and provide an income stream from consumers who purchase the game secondhand. Activision has used DLC and multiplayer to extend the life of multi-billion-dollar franchises such as Call of Duty, and we believe franchises like Hearthstone and Overwatch can also maintain long-term success.

Business Strategy & Outlook

We assign Activision a narrow moat. Activision Blizzard is one of the world's largest third-party video game publishers and the firm behind some of the most compelling and lucrative franchises of all time. Over the last 15 years, the video game industry has undergone a number of changes including two console generation transitions; the rise of digital downloads; widespread adoption of mobile games; and the expansion of the free-to-play, or F2P, business model. Over this same period, Activision (the predecessor company) has transitioned from a console-based video game publisher to the one of the largest publishers on both consoles and the PC via the 2008 merger with Blizzard (then owned by Vivendi). The firm owns six core franchises that have grossed over $1 billion in revenue--World of Warcraft, Call of Duty, Diablo, StarCraft, Overwatch, and Hearthstone.

Its portfolio of widely successful franchises allows the firm to monetize its intellectual property year after year by delivering content via sequels, expansion packs, downloadable content, or DLC, and toys, exemplified by the decade-old World of Warcraft franchise and the annual versions of Call of Duty. These franchises can also spawn games that move the company into new arenas such as F2P (Hearthstone from WoW) and mobile (Call of Duty Mobile). The company's franchises have a dedicated user base, providing Activision with the leverage to push more of its games via direct digital channels thus bypassing retailers, generating higher gross margins and improving returns on invested capital.

We believe that the console and PC video game market will continue to largely fragment into two tiers: AAA games with large budgets and indie games with small budgets. Activision’s size and the depth of its franchise slate allow the firm to place larger bets on new IP than many smaller midsize competitors. This ability to make larger investments marks the publisher as one of a few destinations for studios looking to develop new large-budget AAA games.

Narrow

Economic Moat

Activision Blizzard

King Digital Entertainment is a social games development company. King develops games for the web, for mobile (iOS, Android, Windows Phone), Facebook, and Windows 10. King gained fame after releasing the cross-platform title Candy Crush Saga in 2012, considered the first successful game utilizing the freemium model. King was acquired by Activision Blizzard in February 2016 for $5.9 billion, and operates as its own entity within that company.

King Digital Entertainment

Activision is an American interactive entertainment company. Headquartered in Santa Monica, California and founded in 2008 through the merger of Vivendi Games and Activision, the company is traded on the NASDAQ stock exchange under the ticker symbol NASDAQ: ATVI, and since 2015 has been one of the stocks that make up the S&P 500. Activision Blizzard currently includes five business units: Activision, Blizzard Entertainment, Major League Gaming, Activision Blizzard Studios, and King Digital Entertainment.  Some of their popular games include: World of Warcraft, StarCraft, Diablo, Hearthstone, Heroes of the Storm, Overwatch, Call of Duty,  kylanders, Destiny, Candy Crush Saga, Candy Crush Soda Saga, Candy Crush Jelly Saga, Farm Heroes Saga, Pet Rescue and Bubble Witch.

Major League Gaming is a professional eSports organization. MLG is headquartered in New York City, New York and was founded in 2002 by Sundance DiGiovanni and Mike Sepso. MLG has held official video game tournaments throughout the United States and Canada. The Boost Mobile MLG Pro Circuit was a television broadcast of Halo 2 MLG tournaments in 2006 and 2007, ESPN.com, and other broadband sites. The company has also been involved in television production, and game development. MLG's aim is to elevate computer and console game tournaments to viable competitive and spectator events.

Major League Gaming

Activision Blizzard, Inc. engages in the development and publication of entertainment content and services. It operates through the following segments: Activision Publishing Inc., Blizzard Entertainment Inc., and King Digital Entertainment. The Activision Publishing Inc. segment delivers content through both premium and free-to-play offerings, as well as by licensing software to third-party or related-party companies that distribute Activision products. The Blizzard Entertainment segment is engaged in delivering content through both premium and free-to-play offerings, and by licensing software to third-party or related-party companies that distribute Blizzard products. The King Digital Entertainment segment is focused on delivering content through free-to-play offerings and generates revenue from in-game sales and in-game advertising on the mobile platform. The company was founded in 1979 and is headquartered in Santa Monica, CA.

Earnings data Q4 2023

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Microsoft

Activision Blizzard and Microsoft have extended their acquisition deadline to October after regulatory delays pushed the past the limits of the original agreement.

Activision Blizzard-Microsoft Deal Extended to October After Regulatory Delays

Microsoft has agreed to extend the deadline for its $68.7 billion acquisition of Activision Blizzard by three months to October 18, 2023.

Microsoft extends Activision Blizzard merger deadline by 3 months

The deadline for Microsoft's $69 billion acquisition of video game company Activision Blizzard has been extended as the companies seek to close a deal that has been challenged by regulators in the U.S., as well as by the U.K.'s Competition and Markets Authority.

Microsoft and Activision extend deadline to close $69 billion deal under close regulatory scrutiny

Microsoft and Activision have jointly agreed to extend the deadline to complete their mega merger for a further three months in order, they say, to allow time to resolve “remaining regulatory concerns”. The original deadline for Microsoft to close the $68.7BN acquisition of Activision it announced back in January 2022 was July 18 (yesterday).

Microsoft, Activision give themselves three more months to close mega-merger

Microsoft and Activision Blizzard agreed to extend their merger agreement deadline by three months to help address regulatory concerns in the UK.

Microsoft and Activision Blizzard extend merger agreement to Oct. 18

Berkshire Hathaway recently sold most of its stake in Activision Blizzard. Warren Buffett appears to be taking profits on his merger arbitrage play with the stock.

Warren Buffett Is Selling Activision Stock Before the Microsoft Acquisition Closes. Should You?

Microsoft and Activision have mutually agreed to extend their merger deadline by three months in the face of ongoing negotiations with the UK government that could allow the $69 billion acquisition to close, the two companies announced on Wednesday.

Microsoft and Activision extend their deal deadline

Activision Blizzard and Microsoft agreed on Wednesday to extend the deadline for their merger agreement to Oct. 18 as the companies continue to work on gaining approval from regulators.

Microsoft, Activision extend deal deadline to Oct. 18

The extension is likely a signal that the companies believe they will eventually receive needed approvals.

Microsoft and Activision Delay Deal to Settle UK Regulatory Issues

Activision also declares a cash dividend of 99 cents a share.

Microsoft-Activision Merger Deadline Is Extended to Oct. 18

The extension, until mid-October, allows the companies to continue with efforts to gain regulatory approval in the U.K.

Microsoft, Activision Blizzard Extend $75 Billion Merger Deadline

Videogame maker Activision Blizzard Inc. ATVI, -0.50% announced Wednesday an agreement with software giant Microsoft Corp. MSFT, +3.98% to extend the merger deadline by three months to Oct. 18. The potential termination fee payable to Activision was increased to $3.5 billion from $3.0 billion if the deal is terminated after Aug. 29, and to $4.5 billion if its terminated after Sept.

Activision extends Microsoft merger deadline, declares 99-cent dividend

Microsoft and Activision Blizzard on Wednesday agreed to extend the deadline for their merger agreement until Oct. 18, Activision said in a statement on Wednesday.

Microsoft, Activision agree to extend deal deadline to Oct. 18

SANTA MONICA, Calif.--(BUSINESS WIRE)--Activision Blizzard, Inc. (Nasdaq: ATVI) today announced second quarter 2023 results. “This quarter, our talented teams delivered strong performance for our players and shareholders. We delivered a 50% year-over-year increase in net bookings, operating income growth over 70%, earnings per share growth over 80%, and a record quarter for Blizzard with over $1 billion in net bookings for the first time,” said Bobby Kotick, CEO of Activision Blizzard. “Most im.

Activision Blizzard Announces Second Quarter 2023 Financial Results

The companies plan to continue work to resolve lingering regulatory issues as the deadline to close the merger approaches.

Microsoft and Activision Blizzard Still Committed to $75 Billion Merger

Microsoft has cleared nearly all of the major obstacles in its path to securing the biggest acquisition in gaming history but, for gamers, the future remains unclear.

Microsoft-Activision Blizzard merger nearly clear of obstacles - but future for gamers remains unclear

Sony

Call of Duty, one of the biggest and most successful gaming franchises ever, is owned by Activision, which Microsoft is set to take over.

Bitter Rivals Microsoft And Sony Agree On 10-Year Call Of Duty Deal

Warren Buffett exited his wager on Microsoft buying Activision Blizzard last quarter, filings show. Buffett built a $5 billion Activision stake, wagering the stock would hit Microsoft's offer of $95.

Warren Buffett cashed in his monster bet on Microsoft buying Activision Blizzard - but left some money on the table

Warren Buffett's Berkshire Hathaway Inc (NYSE:BRK.A) cut a large portion of its stake in Activision Blizzard Inc (NASDAQ:ATVI) as approval of its merger with Microsoft Corporation (NASDAQ:MSFT) edges closer. The Nebraska-based company now only owns 1.9% of the video game publisher, according to a filing by Activision on Monday.

Warren Buffett cuts Activision stake as Microsoft deal edges closer

The tech giant wants to extend the contract for its $69 billion acquisition of the videogame company, which is due to expire on Tuesday, Reuters reported.

Microsoft Looks to Extend Activision Blizzard Deal Deadline: Report

The Activision investment was a form of arbitrage, with Buffett viewing investors as too pessimistic that regulators would approve combining Microsoft's Xbox gaming console business with the publisher of the "Call of Duty" and "Candy Crush" franchises.

Warren Buffett cut Activision stake before US judge approved Microsoft merger

Warren Buffett's Berkshire Hathaway Inc. BRK.B, +0.93% BRK.A, +1.18% has cut its stake in videogame publisher Activision Blizzard Inc. ATVI, +3.49% to 1.9%, according to a securities filing late Monday. Berkshire was Activision's No.

Warren Buffet's Berkshire Hathaway cuts Activision Blizzard stake

Berkshire Hathaway, led by CEO Warren Buffett, had invested in videogame maker Activision to capture the arbitrage spread.

Berkshire Cuts Activision Stake by 70% to 14.6 Million Shares as Deal Nears

Berkshire Hathaway dumped a significant portion of its stake in Activision as Microsoft's deal to buy the video game company edged closer to the finishing line.

Warren Buffett's Berkshire Hathaway cuts Activision stake as Microsoft deal inches closer

Shares of Activision Blizzard Inc. ATVI, +3.39% surged 3.5% in afternoon trading Monday, putting them on track to close at a two-year high, in the wake of Microsoft Corp.'s MSFT, +0.04% announcement over the weekend that the videogame maker's “Call of Duty” game will remain available on Sony Corp.'s SONY, +1.43% 6758, -1.08% PlayStation gaming platform after Microsoft's acquisition of Activision closes. Microsoft's stock was little changed, while Sony's U.S.-listed shares climbed 1.5%.

News for Activision Blizzard Stock (ATVI)