Microsoft Corporation MSFT announced Tuesday a deal to buy Activision Blizzard Inc ATVI for $95 per share in cash, valuing the game developer at $68.7 billion. An analyst at Wedbush broke down the deal dynamics, and how it will impact Redmond's business.
The Microsoft Analyst: Daniel Ives has an Outperform rating and $375 price target for Microsoft shares.
The Microsoft Thesis: The proposed Activision deal represents Microsoft's largest acquisition ever and is the largest M&A deal in tech history after Dell Technologies Inc's DELL $67 billion EMC buy, Ives said in a note.
This is an aggressive acquisition that will allow core franchises such as Call of Duty, Warcraft and Candy Crush to be integrated into the Redmond ecosystem and streaming endeavors, the analyst said.
The deal, which is expected to close in Microsoft's fiscal-year 2023 and be accretive to earnings upon closing, is likely to ultimately be cleared by regulators, Ives said. There will, however, be some inherent speed bumps, both in the U.S. and Europe, on a tech deal of this size, he added.
Microsoft's Cloud business, led by Azure and Office 365, has been critical to the company's success over the past five years and the consumer strategy has been on a "treadmill approach, the analyst said.
The Activision deal, Ives said, will help jump start Microsoft's broader gaming endeavors and ultimately the company's move into the metaverse, with gaming the first monetization piece of the metaverse.
With Activision's stock under heavy pressure over the last few months, Microsoft seized the opportunity to acquire a unique asset that can propel its consumer strategy forward, the analyst said.
"Ultimately Nadella saw a window to make a major bet on consumer while others are caught in the regulatory spotlight and could not go after an asset like this," Ives said in the note.
From a stock perspective, Microsoft needs to give investors comfort around the broader strategic view of Activision, Wedbush said. Another issue at play will be Activision's relationship with Sony Group Corp's SONY PlayStation console and future streaming efforts, the investment firm added.
Microsoft Price Action: At last check, Microsoft shares were down 1.99% at $304.02.
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