Microsoft (MSFT) shook the tech and gaming industries on Tuesday when it announced its planned purchase of Activision Blizzard (ATVI) for $68.7 billion. The deal, slated to close in 2023, would instantly turn Microsoft into the owner of one of the biggest franchises in the world, “Call of Duty,” and make it a key mobile gaming player.
But according to Jefferies analyst Brent Thill, the deal is also a huge win for Activision Blizzard and its employees, who have had to contend with an ongoing sexual harassment and discrimination scandal that rocked the company.
“Microsoft just threw not a lifeboat, but they pulled up in a megayacht, and everyone got on, ‘Let’s go!’ ” Thill told Yahoo Finance Live.
“I’ve said this repeatedly…working for the Microsoft team, they do it right. They are competitive, they are focused, but they do it with integrity. I think ultimately the employees at Activision will probably be excited to be a part of that culture.”
Activision Blizzard has been buffeted by controversy since July when California’s Department of Fair Employment and Housing filed a lawsuit claiming the company fostered a “frat boy culture” where male employees groped their female colleagues, and women, especially women of color, were denied raises and promotions.
The U.S. Equal Employment Opportunity Commission also went after Activision Blizzard for its work environment, though the company agreed to pay $18 million to settle the case. The Securities and Exchange Commission is also looking into the company over allegations that it didn’t inform investors of workplace harassment allegations.
Activision Blizzard’s stock had fallen from around $90 per share when the scandal broke to some $57 per share in December. Shares rocketed to $82 on Jan. 17 after news of the acquisition broke.
Microsoft Gaming CEO Phil Spencer seized on Activision Blizzard’s poor performance following the scandal and reached out to CEO Bobby Kotick with a proposed deal, according to Bloomberg.
Activision Blizzard employees, meanwhile, staged walkouts protesting Kotick and calling for the board to force him out. Kotick ultimately said he would resign if the company’s culture didn’t improve, though he didn’t provide a timeline.
“Obviously you have massive cultural issues at Activision,” Thill said. “We’ve never seen 20% of a company sign a petition to remove a CEO. That’s unheard of in our industry. So there are a number of factors that we think Microsoft can help with.”
Microsoft said Kotick will stay on with Activision Blizzard and report to Spencer, though the Wall Street Journal reported that he’s expected to depart after the deal closes.
The Activision Blizzard acquisition also bodes well for Microsoft’s Game Pass gaming service. The offering gives gamers the option to download more than 100 games, including brand new titles, to their Xbox or PC for $9.99 per month.
But it’s the company’s $14.99 Game Pass Ultimate, which includes the option to stream games to smartphones, tablets, Chromebooks, and connected TVs, that will benefit the most from the deal in the long term. Think of it as a Netflix for gaming, letting you jump online without bulky, expensive hardware and play the latest and greatest games as you please.
“This has historically been a lower margin business [for Microsoft] versus their core software business,” Thill said. “If they can convert this to more subscription and cloud, and not have as much hardware, clearly there’s a lot of margin to leverage in this business over time.”
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Source: https://finance.yahoo.com/news/microsoft-pulled-up-a-megayacht-for-activision-blizzard-employees-170159429.html