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Microsoft-Activision sets $ 69 billion record

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Microsoft CEO Satya Nadella.

Charles Pertwee | Bloomberg | Getty Images

Microsoft tried to set a record in 2008. Steve Ballmer, then CEO, pursued plans to buy Yahoo for about $ 50 billion. This was the largest US technology transaction to date, surpassing SDL purchased by JDS Uniphase for $ 41 billion in 2000.

Fortunately for Microsoft, Yahoo repeatedly rejected the bid. Yahoo was overwhelmed by Google in an internet search and eventually sold to Verizon for $ 4.5 billion in 2017.

Satya Nadella is now trying again to put Microsoft on the transaction log.

Microsoft announced on Tuesday that it will acquire Activision Blizzard, a video game publisher, for about $ 69 billion. That’s just above the wealthiest US technology deal in history. In 2016, Dell purchased EMC for $ 67 billion. Next comes the JDS-SDL deal, followed by IBM’s $ 34 billion acquisition of Red Hat. This was completed in 2019.

Microsoft needs to get regulatory approval from Activision shareholders, and more importantly, from regulatory authorities. Nvidia’s two recent mega-deals in the semiconductor industry, Nvidia’s Arm purchase effort and AMD’s Xilinx purchase agreement, have both been under regulatory review for over a year.

For Microsoft, the purchase price is more than double the amount paid by a 47-year-old company so far. The top of its last acquisition was LinkedIn in 2016, which cost more than $ 26 billion.

However, Nadella, who took over Ballmer as Microsoft CEO in 2014, has the capital to invest and an investor base that encourages proactive action.

Proportionately small

At the time of LinkedIn’s announcement, Microsoft was valued at about $ 400 billion, so purchases amounted to about 6.5% of market capitalization. When we tried to buy Yahoo, Microsoft had a market capitalization of about $ 260 billion. So Microsoft would have abandoned almost 20% of the company.

Currently, Microsoft has a valuation of approximately $ 2.3 trillion and pays only 3% of Activision’s market capitalization.

Microsoft pays Activision investors in cash rather than taking advantage of rising stock prices. It’s a heavy load, but Microsoft can afford it. As of September 30, the company had $ 130 billion in cash and equivalents, 85% of which was in the form of short-term investments.

Microsoft’s purchase price is 45% above Activision’s closing price on Friday. But Microsoft investors don’t seem to have any problems. Shares fell just 2.4% on Tuesday, in line with many other tech stocks, due to the overall market downturn.

This is due to Nadella’s proven success in integrating previous acquisitions such as LinkedIn and GitHub, which Microsoft acquired for $ 7.5 billion in 2018. However, this reflects the excitement of the game and Microsoft’s potential to extend its presence beyond the Xbox and existing subscriptions. A service called Game Pass.

“The full cash offer to buy ATVI for $ 68.7 billion is not only the biggest acquisition in Microsoft’s history, but also an attractive strategic value, especially in the consumer technology sector, where Microsoft’s product portfolio is small. Bring it, “writing Piper Sandler analysts. I will share it in the memo after the announcement. “Games and advertising represent two segments, which combine to give Microsoft more opportunities to gain $ 1 trillion in market share over the long term.”

Microsoft is also putting pressure on Big Tech, but taking advantage of the regulatory environment that has largely left Microsoft alone. Google, Apple, Facebook, and Amazon executives have recently faced the wrath of elected officials concerned about too little integration of advertising, commerce, and mobile data.

While most of these megacap companies have been limited to small acquisitions in the tangential market, Microsoft continues to fluctuate significantly.

“From a regulatory perspective, MSFT is not under the same level of surveillance as other technicians (Amazon, Apple, Facebook, Google),” Wedbush Securities analyst Dan Ives wrote in a report. “Ultimately, Nadella saw a window to make big bets on consumers, but others were caught in the spotlight of regulation and couldn’t chase such assets.”

Still, transactions of this size are certain to be frowned upon in Washington, DC, testing whether Microsoft still maintains such goodwill.

Activision closed at $ 82.31 at 26% on Tuesday. This is 13% below the agreed acquisition price. This is a clear sign that investors are not confident that the partnership will reach the finish line.

See: Microsoft, Activision Blizzard, Broadcom are some of today’s top picks

Sources

1/ https://Google.com/

2/ https://www.cnbc.com/2022/01/18/biggest-tech-deal-ever-microsoft-activision-set-69-billion-record.html

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