Microsoft’s $68 billion acquisition of gaming company Activision Blizzard would make it one of the world’s top three public video game companies.

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Microsoft sent shockwaves through the gaming industry when it announced its blockbuster bid to acquire Activision Blizzard, one of the world’s largest video game publishers. The $68.7 billion all-cash deal, if completed, would be the biggest all-cash acquisition in history as well as Microsoft’s largest overall. Apart from its size and significance, the deal is remarkable for how quickly it came together. It also raises questions as to why Microsoft would pay a premium price for a troubled business.

Activision has drawn rancour over accusations that its senior executives ignored claims of sexual harassment and discrimination. In addition to triggering an investigation by the U.S. Securities and Exchange Commission (SEC), this drained some of its human capital. Employees walked out in protest, and executives resigned in disgrace. CEO Bobby Kotick became a lightning rod for controversy. When the acquisition closes, likely in early 2023, Microsoft may have to distance itself from him. Many observers believe he will step down.

Microsoft is taking what many would consider a gamble, but it has several motives which make strategic sense. The company demonstrated its interest in expanding its gaming business with its purchase of ZeniMax Media last year. The acquisition of Activision would make it the world’s third-largest video game publisher by annual revenues, after Tencent and Sony. It would also add a number of hit gaming franchises such as Call of Duty, World of Warcraft and Candy Crush Saga to Microsoft’s library.

Microsoft reached out to Kotick with a takeover bid in December, a time when the gaming company’s share price was down sharply, the New York Times reports. Kotick rejected the bid at first, but stopped short of dismissing Microsoft entirely. Instead he asked for a better offer. An agreement was reached within weeks. Microsoft looked into the toxic workplace allegations, and concluded that the situation had been resolved and any lingering controversy could be managed.

Analysts say Microsoft is betting not only on its acquisition target, but on gaming and the internet at large. Image problems aside, Activision Blizzard offers highly valuable intellectual property. Acquiring it would give Microsoft its nearly 400 million monthly users. It would also catapult the tech giant into the world’s top three public video game companies. As part of a longer-term strategy, Activision could help Microsoft compete in the metaverse, which is seen as the next big computing platform. But first it will need to conquer opponents on the regulatory playing field.

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