Is the Activision Deal All Cash?
In January 2022, Microsoft announced its intent to acquire Activision Blizzard, a leading game developer and publisher, in an all-cash deal worth $68.7 billion. The deal would make Microsoft the third-largest video game company in the world, behind Sony and Tencent. But what exactly does "all-cash" mean in this context?
Announcement and Financials
On January 18, 2022, Microsoft announced its acquisition of Activision Blizzard in an all-cash deal, with a purchase price of $95 per share. This represents a 40% premium over Activision Blizzard’s previous closing price. The total deal value is $68.7 billion, including Activision Blizzard’s net cash.
Inclusive of Net Cash
As mentioned in the announcement, the deal value is inclusive of Activision Blizzard’s net cash, which means that Microsoft will inherit Activision Blizzard’s cash reserves. This net cash is estimated to be around $5 billion. As a result, the acquisition is effectively a debt-free deal, which will allow Microsoft to leverage Activision Blizzard’s existing cash reserves to finance future growth and investments.
No Debt or Stock Offerings
The all-cash deal means that there will be no debt incurred by Microsoft to finance the acquisition. Additionally, there will be no stock offerings or equity financing, as the entire purchase price is being paid in cash.
Why All Cash?
There are several reasons why Microsoft chose to go with an all-cash deal:
- Avoidance of Debt: Microsoft wanted to avoid taking on debt to finance the acquisition, which would have put pressure on its balance sheet.
- No Financing Risk: By paying cash, Microsoft eliminates the risk of financing issues, which could impact the acquisition process.
- No Currency Risk: The all-cash deal eliminates currency exchange risks, as the transaction is being conducted in the same currency (USD).
Impact on Shareholders
For Activision Blizzard shareholders, the all-cash deal means a guaranteed return on their investment, with a 40% premium over the company’s previous closing price.
What’s Next?
The acquisition is subject to regulatory approvals and is expected to close in fiscal year 2023. After the deal closes, Microsoft will integrate Activision Blizzard into its gaming division, which will be led by Phil Spencer, the head of Xbox.
In Conclusion
The Activision Blizzard deal is an all-cash transaction, inclusive of the company’s net cash reserves. This financing structure allows Microsoft to avoid debt and financing risks, while providing a guaranteed return for Activision Blizzard shareholders. The deal is a significant milestone in the gaming industry, and we can expect to see more consolidation and partnerships in the years to come.
Key Takeaways
- The Activision Blizzard deal is an all-cash transaction, valued at $68.7 billion.
- The deal is inclusive of Activision Blizzard’s net cash reserves, estimated to be around $5 billion.
- The acquisition is debt-free, with no financing risks or currency exchange risks.
- The deal provides a guaranteed return for Activision Blizzard shareholders, with a 40% premium over the company’s previous closing price.
Timeline:
- January 2022: Microsoft announces its intent to acquire Activision Blizzard in an all-cash deal.
- FY 2023: Expected closing date for the acquisition.
- Post-closing: Integration of Activision Blizzard into Microsoft’s gaming division.