How Will Microsoft Pay for Activision Blizzard?
In one of the largest acquisitions in the tech industry, Microsoft is set to pay a hefty sum of $95 billion to acquire Activision Blizzard, the parent company of popular game franchises such as Call of Duty, World of Warcraft, and Candy Crush. This deal, which is still pending approval from regulatory authorities, is expected to shake up the gaming industry. In this article, we will dive into the details of how Microsoft plans to pay for Activision Blizzard.
Cash Component
The bulk of the purchase price is being paid in cash. Microsoft has offered $95 per share to Activision Blizzard’s investors, a significant premium to the company’s current share price. This means that Activision Blizzard’s existing shareholders, including CEO Bobby Kotick and chairman Brian Kelly, will receive a substantial amount of cash when the deal is completed. Approximately $23 billion in cash will be paid upfront, with the remaining balance to be financed through Microsoft’s existing credit facilities and cash reserves.
Assumptions
To gauge the feasibility of this acquisition, it is essential to understand the underlying assumptions behind the deal. Microsoft believes that the synergies from combining its own gaming portfolio with Activision Blizzard’s will lead to significant revenue growth and increased profitability. The company plans to realize these synergies through increased marketing efforts, shared costs, and improved operational efficiencies.
Key Metrics
Here are some key metrics that indicate the scope and scale of the deal:
| Metric | Amount |
|---|---|
| Purchase price | $95 billion |
| Cash payment | $23 billion |
| Acquisition premium | 45% |
| Operating profit of Activision Blizzard | Approximately $1 billion |
| Revenue of Activision Blizzard | Approximately $15 billion |
Repayment Strategies
To ensure that Microsoft can finance the acquisition without straining its balance sheet, the company has employed several repayment strategies:
| Strategy | Description |
|---|---|
| Share buybacks | Microsoft may use a portion of its cash reserves to repurchase its own shares, effectively reducing its diluted earnings per share. |
| Asset sales | Microsoft may dispose of certain non-core assets to raise cash and use it to pay for Activision Blizzard. |
| Debt issuance | Microsoft has the option to issue additional debt to fund the acquisition, which will be repayable through a combination of cash flow from operations and asset sales. |
Regulatory Approvals
The deal is still subject to approval from regulatory authorities, including the United States Federal Trade Commission (FTC) and the European Commission (EC). Activision Blizzard has received approvals from authorities in the UK, Japan, and Canada, clearing the way for the acquisition to move forward.
Conclusion
The acquisition of Activision Blizzard by Microsoft is a game-changer for the tech industry, with far-reaching implications for the gaming industry and the broader market. While there are several repayment strategies that Microsoft has employed to finance the deal, it is crucial to monitor the company’s financial performance and debt levels to ensure that the acquisition does not negatively impact its financial position.