Microsoft’s Activision Buy Extends Nadella’s Decade of Deals

Microsoft MSFT -1.04%decrease; red down pointing triangle closed its $75 billion acquisition of Activision Blizzard ATVI -0.05%decrease; red down pointing triangle, the largest in a decade of deals under Chief Executive Satya Nadella that have positioned the software giant at the center of sectors from videogames to artificial intelligence.

The purchase, which closed Friday, is the biggest deal in its nearly 50-year history and took 21 months to get through a global gantlet of regulators. 

Activision’s stable of bestselling franchises, including Call of Duty and Candy Crush, will strengthen Microsoft’s videogame business by more than half to above $24 billion. The additions also will move the business further away from Xbox consoles and toward gaming content that lives across platforms and devices.

It is the largest in a series of major moves by Nadella, who has used Microsoft’s financial strength to push the company into new areas, from cloud computing to social media to AI.

Nadella’s objective has been getting into new areas as quickly as possible, people who have worked with him say.

“If he can do that by buying something that helps him to do it faster, he will,” said Jim DuBois, a former Microsoft chief information officer who worked under Nadella and his predecessors.

Despite the large investment, Microsoft’s videogaming business remains a small part of the overall company.

Adding Activision would have made gaming overall about 10% of Microsoft’s revenue in its latest fiscal year, up from the 7% the company actually reported. The bolstered videogaming operations would put it on par with the Windows business that Microsoft was first built on and significantly larger than its LinkedIn and advertising units, though still half of the Office products and cloud services category.

And videogaming isn’t seen as the most important thing the tech company has going on right now.

Nadella and other Microsoft executives have talked more about the company’s progress with artificial intelligence and the company’s more than $10 billion investment in ChatGPT’s creator, OpenAI. On Microsoft’s earnings call in July, Nadella mentioned AI and OpenAI 50 times. He discussed Activision once and gaming nine times.

Microsoft is already betting its biggest brands on AI, infusing it into nearly all its products. The technology is now part of Microsoft’s Bing search engine and Windows operating system and is being added to its best-known products, including Outlook, PowerPoint and Excel.

Since becoming CEO in 2014, Nadella has acquired LinkedIn for $26 billion, Nuance Communications for $16 billion, videogame maker ZeniMax Media for $7.5 billion, and put Microsoft in the running for other deals like TikTok, Pinterest and Discord.

The Federal Trade Commission Chair Lina Khan is taking on the world’s biggest tech companies and losing. WSJ reporter Dave Michaels joins host Zoe Thomas to discuss why the agency’s approach hasn’t worked so far. Photo: Al Drago/Bloomberg News

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With the help of those deals, Microsoft’s revenue has nearly tripled since the fiscal year before he started, and its share price has grown more than eight times as the Nasdaq Composite Index tripled. Microsoft’s stock slid around 1% and Activision shares were little changed Friday.

Microsoft has been by far the most acquisitive of the U.S. tech giants. In the years Nadella has been in charge, it struck more than 326 deals worth over $170 billion in total, according to Dealogic. The second most was Broadcom

, with deals worth around $150 billion during that time; more than half of its total was its 2022 acquisition of VMware.

The Activision deal, which Microsoft valued at $69 billion after adjusting for the videogame maker’s net cash, gives it access to a large library of titles for people who play games on their phones. It will also help the company entice subscribers to its Game Pass service, which includes cloud gaming, the streaming of videogames.

Cloud gaming is in its infancy today, but industry executives and analysts expect it to take over much of the videogaming market, in the same way Netflix and other streaming services have come to dominate video. The technology eliminates the need to spend hundreds of dollars on consoles or computers by offering instant access to games through phones, smart TVs and other internet-connected devices.

It took a close-to-two-year charm offensive, as well as court hearings and changes to the terms of the acquisition, to get the deal approved amid concerns from policy makers around the world.

The latest approval came Friday after the U.K.’s Competition and Markets Authority said the proposed acquisition no longer poses a major threat to competition in cloud gaming. To secure approval, Microsoft offered to restructure the deal by forfeiting cloud-streaming rights for Call of Duty and other popular Activision franchises in much of the world.

The deal was initially rejected by the CMA and the U.S. Federal Trade Commission. Microsoft won the right to close the deal in the U.S. in June after battling the FTC in a federal court.

With the deal done, the FTC still can seek to force the tech companies to unwind their merger through its administrative court. Legal experts say that decision could take a long time and could be appealed to an outside court, where it would most likely be rejected again.

Microsoft’s stamina and success at seeing through the efforts reflect its deep pockets and established global presence. When the companies announced the deal in January 2022, they expected the deal to close by July 2023. They later extended that deadline to Oct. 18.

“Microsoft put a lot of resources into getting this deal done,” said Cowen analyst Doug Creutz. “They were very patient with the process.”

Still, the hard-won Activision acquisition could change how Microsoft evolves—and mark the end of an era of monster acquisitions by it and other tech giants.

Regulators are more skeptical of the industry than they used to be. They are looking harder at multibillion-dollar deals, pushing back, delaying and rejecting them more than before.

Nadella’s record on acquisitions has likely given him leeway with investors to spend big. However, the structure of the company’s deal with OpenAI may point a new way forward where Microsoft can continue to do big deals while limiting the scrutiny.

Microsoft invested $13 billion over four years to buy a 49% stake in the company, giving it early access to its technology without the burden of controlling the company and running afoul of regulators.

“The world has changed, and the priorities inside Microsoft have evolved,” said Stifel analyst Brad Reback.

Kim Mackrael contributed to this article.

Write to Tom Dotan at tom.dotan@wsj.com and Kim Mackrael at kim.mackrael@wsj.com

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Appeared in the October 14, 2023, print edition as 'Microsoft Completes Its $75 Billion Deal To Buy Activision'.