Activision is best known for such titles as Call of Duty, Warcraft and Candy Crush. Such billion dollar intellectual properties takes years if not decades to create. But that value can also prove ephemeral. The gaming industry had been wracked by scandals involving abusive workplaces.
At Activision, controversy has focused on the culture of a business whose chief executive Bobby Kotick was previously among the highest paid US bosses. The shares have fallen 37 per cent from their peak last February.
If Microsoft was paying the same premium — 45 per cent — over the trading price of Activision shares at their historic earnings ratio of 25 times, it would have to rustle up US$99b.
The implied purchase P/E multiple Microsoft is paying is just 26 times. The deal is a fraction of the software group's own value but large enough that virtually no other bidder — say Netflix — could try to jump in.
Revitalised regulators are the biggest potential deal-breakers. Microsoft has a cloud subscription portal called Game Pass which already has 25m subscribers. Plugging Activision titles into GamePass would be a natural move, even though Microsoft has existing tie-ins with the likes of Electronic Arts. This would keep gamers within Microsoft's online world for longer. As in Call of Duty, the aim of the game is to seize and hold on to territory.
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