Game on as Microsoft bids to find another level

MICROSOFT surprised the market last week with news it plans to buy video game maker Activision Blizzard.

The publisher makes popular titles such as Call of Duty and therefore has some of the most valuable intellectual property in the entertainment world.

The deal still needs shareholder and regulator approval, but if it goes ahead it will be worth almost $70billion (£52billion). That would make it Microsoft’s biggest-ever acquisition.

Existing Activision Blizzard shareholders are being offered $95 per share. That’s more than 40 per cent higher than the value of their shares before the deal was announced.

I can understand why Microsoft wants to get in on Activision’s action. Gaming is rocketing in popularity, with the market worth more than $200billion.

Microsoft already has some gaming products in its armoury. Thanks to the likes of Xbox, gaming makes up about 9 per cent of its revenue.

But there is a huge opportunity online, especially on mobiles. Microsoft has the subscription-based Game Pass, and if it can successfully launch new gaming brands through this channel, there’s a big opportunity to grow. Subscription-based revenue is particularly attractive because it is recurring and much more reliable.

Microsoft is already the go-to provider of must-have software such as Word and Excel, so tacking on a gaming arm is a stroke of genius.

The deal would make Microsoft the world’s third largest gaming company.

It is able to afford the move because at last count it had net cash of $77billion sitting on the balance sheet. There aren’t many firms with the firepower to make such a bold acquisition.

It’s also worth noting that Microsoft is pouncing at a time when the share price is subdued. That follows a series of very public culture and conduct complaints.

The move will involve new territories for Microsoft and is hardly a small-fry deal. Any missteps would not go down well with the market. A price to earnings ratio of 30.5 isn’t sky-high, but still leaves some room for ups and downs.

“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”