Microsoft acquired Activision Blizzard King for $69 Billion on 2023-10-13

[Deleted member 11852]

As far I know the only expenses incurred from M&A are the transaction fees and any interest owed. The company that is being acquired, its liabilities move onto your balance sheet, its assets move onto your asset's. Outside of Goodwill, the only way you're going to incur an actual additional liability is if MS is borrowing 70B to purchase ABK. If they have liquid amounts of cash and/or willing to convert shares over then the respective assets decline, in exchange for the gains of ABK's assets.

You're over thinking this. Microsoft are trying to make Xbox and GamePass [more] profitable and the acquisition of Activion-Blizzard will be a massive cost to Microsoft. Regardless of which budget Microsoft are proposing to use for this acquisitions, this is a further $70bn investment to improve the appeal of Xbox and GamePass.

What I am talking about, is the absolute bottom line of money invested in these business verses profit generated.

 

[iroboto]

You're over thinking this. Microsoft are trying to make Xbox and GamePass [more] profitable and the acquisition of Activion-Blizzard will be a massive cost to Microsoft. Regardless of which budget Microsoft are proposing to use for this acquisitions, this is a further $70bn investment to improve the appeal of Xbox and GamePass.

What I am talking about, is the absolute bottom line of money invested in these business verses profit generated.

Nope, I don't think I'm over thinking this. You straight up accuse me of not knowing anything about accountancy above indicating that I have no clue about the differentiation between a cost and an expense.

I don't know where you have ever done accountancy, but acquiring assets is definitely an expense. It's not magical free money. You may be thinking of the differentiation between programme/capital and running costs budgets.

You go on to let me know that you believe my understanding of accountancy is working with magically free money basically telling I'm an idiot and know nothing, until I actually bring up accounting text book definitions. And if you go through all of my posts I have always been consistent on my position between a cost and an expense, and you go on to further to insinuate that I'm referring to capital costs which I would never do because that would never be part of mergers and acquisitions.

But ok, let's be civil here, since it's clear to me that you like to use words interchangeably and not clue in that I was using precise syntax, I will capitalize words to let you know I'm referring to syntax.
You say this:

You can that priceless or worthless, but it amounts to the same thing. If you spend $70bn on something that cannot recoup that cost quickly (decades) and you cannot sell it, it's a massive expense.

Which is untrue. ABK left alone entirely as it stands for the next 20 years provided absolutely nothing changes and increase EXPENSES or decrease REVENUE would mathematically gain nearly 2B in PROFITS each year assuming nothing ever changed it would generate for you 2B each year in perpetuity. In order for ABK to be a massive 'EXPENSE' it's REVENUE would need to dip 2B below into negatives and then you're cost of labour and EXPENSES are now exceeding your REVENUEs and from that period forward it is now a massive EXPENSE.

Now, if you want to make the argument that the 'OPPORTUNITY COST' of purchasing ABK for 70b that could have been spent on other initiatives that's fine. But you should have said this right in the beginning.

However, if you want to make the argument that over the next 2 decades the risk and fluctuation of ABK and its profits and expenses could wildly change over the next couple of years resulting in a possible massive EXPENSE, then you have successfully argued in favour of Xbox. Why? Because by your point if ABK is a massive EXPENSE, then that means COD has failed to generate enough revenue, and therefore by the arguments of CMA and SONY, it's NOT important, thereby it CANNOT cause the monopoly of the subscription market, and it CANNOT monopolize the streaming market. It cannot damage SONY because by all your points, and everyone sane here, there is virtually 0% chance that Game Pass and xcloud will ever be able to make up the cost of ABK. Which is precisely why MS continues to say and mustkeep COD multiplatform and for a long time because failure to do so would drop the REVENUES on ABK so quickly that they would be in a scenario that they are now in massive EXPENSES. You have argued sucessfully what everyone is saying.

Now if you are Sony and CMA, then you are basically saying there is nothing that can possibly happen to ABK that would stop the juggernaut known as COD so it would be able to generate profits _IRREGARDLESS_ in perpetuity and leverage that IP to fundamentally monopolize ALL the markets and cause foreclosure. The literally cite that MS can move COD and all of ABK titles to xbox services and hardware only and STILL monopolize the entire market. If this is accurate and then time scaling has no issue here because it will always cause the generation of increasing profits therefore can never become a massive expense.

Great, and thank you. We are now on the same page.

And please, @Nesh stop with the whole, MS has billions to just siphon off losses for xbox. There are shareholders, this wouldn't stand. Xbox has nearly been axed several times over. Stop with this line of thinking, I'm going to have to be cruel and dismiss your thinking as pure fantasy.

 

[Deleted member 11852]

Nope, I don't think I'm over thinking this. You straight up accuse me of not knowing anything about accountancy above indicating that I have no clue about the differentiation between a cost and an expense.

Firstly, apologise if you took it that way. The reason I raised where you had done accountancy in this way is because it's common in financial sectors but less common elsewhere. I was just being nosey. Under most financial reporting legislation, the method of accountancy isn't mandated and the law generally only requires the method to be clear, explained and truthful.

There is no right or wrong way on whether a business conceptually considers spending money as a cost or an expense. These are arbitary terms for slightly different methods of accounting. The guidance that the SEC publishes is unusually concise and short. In SEC terms it's all headlined "All Costs of Doing Business", the SEC and other financial regulators don't care if the business considers them differently internally. There is also guidance on valuing acquired assets which is.. less concise.

Whilst some may wish to think of this potential $70bn acquisition being equivalent $70bn of liquidity, that's not how the SEC see it - hence the guidance. For example, if I buy an ice cream for $100, that's not a liquid asset worth $100 just because I paid $100. It may be worth $100 to me if I was really desperate for ice cream, but in reporting terms there is a determined methodology for valuing the the market value of a particular acquisition. When you buy companies, you're not just buying infrastructure and IP, you're also buying liability.

What I am really interested in is, as of today, how much money has Microsoft invested in their Xbox/GamePass business versus how much profit/loss has it generated - since 2001. And what will those numbers look like after the acquisition is approved. The reason I'm asking this is simple, Activision-Blizzard's net profits over the past few years would suggest this will be crazily long return on their investment even if every PlayStation 4 and 5 owner were to buy an Xbox.

However, if you want to make the argument that over the next 2 decades the risk and fluctuation of ABK and its profits and expenses could wildly change over the next couple of years resulting in a possible massive EXPENSE, then you have successfully argued in favour of Xbox.

Nope, not at all, just the question above. What has Microsoft invested verse what they have got out. It's not a trick question.

Again, I apologise for the misunderstanding or any offence.

 

[Nesh]

And please, @Nesh stop with the whole, MS has billions to just siphon off losses for xbox. There are shareholders, this wouldn't stand. Xbox has nearly been axed several times over. Stop with this line of thinking, I'm going to have to be cruel and dismiss your thinking as pure fantasy.

Thats a generalised twist you created to invalidate arguments against your favor. So better answer directly and on point to what actually is said and avoid those tactics

 

[eastmen]

I am not sure why people think Xbox is always going to get axed. Gaming is extremely profitable and MS wants a piece of that. The only way to get that piece is to consistently build up the brand and investment in it. They do that by having a ton of great games that gamers want. We saw in the 360 era that MS did exactly this and had a great run at market share and profitability.

I am sure that as these dev purchases come to fruition the xbox brand itself will be better for it. Covid delayed things but there are a bunch of great games coming out in 2023 and beyond . If MS is able to acquire Activision they are acquiring a very successful business that in the long run will pay for itself and this is just money sitting in the bank , i am sure on a cost anyaliss the money made from activision is greater than the money just sitting collecting interest

 

[Silent_Buddha]

Thats a generalised twist you created to invalidate arguments against your favor. So better answer directly and on point to what actually is said and avoid those tactics

Uh, he's not wrong. While MS does have a large warchest, they also have very hawkish shareholders ... the largest of which are on their Board of Directors. They can and will force MS to axe anything that is expensive that either doesn't generate positive goodwill (like Satya Nadella's push for disabled access to computing and gaming) or has the potential for significant future profit generation.

Xbox only exists currently because Phil Spencer managed to turn things around and MS were able to show shareholders that they had a plan/vision for profitability for that division, but it isn't in any way, shape or form safe from being axed if the major investors start to think that it is going to become a money sink (IE - that it is siphoning off billions just to cover up losses). Part of that plan was to expand the reach of Xbox Gaming (PC, mobile and even other consoles). If MS had continued to try to limit it to Xbox consoles then Xbox would most likely have ceased to exist during the Xbox One era as the profitability potential of consoles is far too limited for said Investors.

If the major investors didn't think that the Activision-Blizzard acquisition was going to lead to increased profits for the Xbox gaming division and MS still decided to try to pull the trigger on it, then at the very least Satya Nadella and Phil Spencer would likely be looking for a new job.

Nothing major gets done at MS without Investors approving it because the Board of Directors is mostly made up of those investors (shareholders).

Regards,
SB

 

[iroboto]

Firstly, apologise if you took it that way. The reason I raised where you had done accountancy in this way is because it's common in financial sectors but less common elsewhere. I was just being nosey. Under most financial reporting legislation, the method of accountancy isn't mandated and the law generally only requires the method to be clear, explained and truthful.

There is no right or wrong way on whether a business conceptually considers spending money as a cost or an expense. These are arbitary terms for slightly different methods of accounting. The guidance that the SEC publishes is unusually concise and short. In SEC terms it's all headlined "All Costs of Doing Business", the SEC and other financial regulators don't care if the business considers them differently internally. There is also guidance on valuing acquired assets which is.. less concise.

Whilst some may wish to think of this potential $70bn acquisition being equivalent $70bn of liquidity, that's not how the SEC see it - hence the guidance. For example, if I buy an ice cream for $100, that's not a liquid asset worth $100 just because I paid $100. It may be worth $100 to me if I was really desperate for ice cream, but in reporting terms there is a determined methodology for valuing the the market value of a particular acquisition. When you buy companies, you're not just buying infrastructure and IP, you're also buying liability.

What I am really interested in is, as of today, how much money has Microsoft invested in their Xbox/GamePass business versus how much profit/loss has it generated - since 2001. And what will those numbers look like after the acquisition is approved. The reason I'm asking this is simple, Activision-Blizzard's net profits over the past few years would suggest this will be crazily long return on their investment even if every PlayStation 4 and 5 owner were to buy an Xbox.


Nope, not at all, just the question above. What has Microsoft invested verse what they have got out. It's not a trick question.

Again, I apologise for the misunderstanding or any offence.

no worries. i had a feeling it could have been miscommunication and I didn't want to get overly defensive or nasty over it.

I agree that this acquisition will be an extremely long J curve for Xbox if that is the perspective you want to take on it. But the affect of this M&A has large influence over the rest of the xbox business to contain it to just game pass and xcloud if that makes sense. It should boost Xbox across the board.

The only way the J curve for xbox to speed up is if xcloud or the mobile store goes viral since that TAM is so large. I suspect they are hoping for this, but the likelihood of this happening is slim without a strong backing of technology to enable it.

 

[Nesh]

Uh, he's not wrong. While MS does have a large warchest, they also have very hawkish shareholders ... the largest of which are on their Board of Directors. They can and will force MS to axe anything that is expensive that either doesn't generate positive goodwill (like Satya Nadella's push for disabled access to computing and gaming) or has the potential for significant future profit generation.

Xbox only exists currently because Phil Spencer managed to turn things around and MS were able to show shareholders that they had a plan/vision for profitability for that division, but it isn't in any way, shape or form safe from being axed if the major investors start to think that it is going to become a money sink (IE - that it is siphoning off billions just to cover up losses). Part of that plan was to expand the reach of Xbox Gaming (PC, mobile and even other consoles). If MS had continued to try to limit it to Xbox consoles then Xbox would most likely have ceased to exist during the Xbox One era as the profitability potential of consoles is far too limited for said Investors.

If the major investors didn't think that the Activision-Blizzard acquisition was going to lead to increased profits for the Xbox gaming division and MS still decided to try to pull the trigger on it, then at the very least Satya Nadella and Phil Spencer would likely be looking for a new job.

Nothing major gets done at MS without Investors approving it because the Board of Directors is mostly made up of those investors (shareholders).

Regards,
SB

He is right about that, he is not right about what he suggested I implied

 

[iroboto]

Thats a generalised twist you created to invalidate arguments against your favor. So better answer directly and on point to what actually is said and avoid those tactics

Well I apologize, it was not fair of me to write that. Just for some reason I had this inkling feeling that you were going to respond in the following fashion.

For example lets say MS can subsidise services or cheaper products or sacrifice some revenue because they can hugely afford to in order make more people jump in, whereas Sony (and according to their own financial reports) they are losing revenue due to limited supply, thus having to charge extra somewhere else, it can also be claimed that MS are the ones doing anti-competitive practices.

Playstation is more crucial for Sony's financials, whereas MS has Windows as a profit powerhouse to finance pretty much everything.

Do you honestly believe that it makes financial sense for Sony to release games day 1? They cant afford to do that as much as MS can. MS is betting everything on Gamepass. Sony needs the funding from games to fund other projects and services. MS can pretty much subsidize their future plans and projects

Microsoft can afford to lose money for Gamepass to take over the gaming subscription market. If Sony could afford it since they are market leaders, they would have done it now.

And MS can afford to go the "unreliable" model. They can afford to lose money on Gamepass until it establishes itself. It still supports my original argument.

Its obvious MS expects to subsidize it to attract more people and grow, unlike what your argument implies.

 

[Nesh]

Well I apologize, it was not fair of me to write that. Just for some reason I had this inkling feeling that you were going to respond in the following fashion.

Yeah, so? What part of that suggests "wasting money for the sake of wasting"? I thought you were smart enough to understand this as part of a long term plan to establish and grow (in the very quotes) which means eventually being profitable.

Which I also suggested in my post about the balance sheet where I said MS isnt buying assets just for the sake of buying assets. They spent billions as part of a large long term plan.

To make it easier for you I m saying that MS can afford to do strategically what Sony can't afford to do (70 billion +8 billion purchases didnt happen? Yes they did)

I didnt notice it was open for interpretation and twist by you. So now that I know cut the BS.

 

[iroboto]

Yeah, so? What part of that suggests "wasting money for the sake of wasting"? I thought you were smart enough to understand this as part of a long term plan to establish and grow (in the very quotes) which means eventually being profitable.

Which I also suggested in my post about the balance sheet where I said MS isnt buying assets just for the sake of buying assets. They spent billions as part of a large long term plan.

To make it easier for you I m saying that MS can afford to do strategically what Sony can't afford to do (70 billion +8 billion purchases didnt happen? Yes they did)

I didnt notice it was open for interpretation and twist by you. So now that I know cut the BS.

my issue is that you think MS will transfer money to Xbox gaming division on a whim. It doesn’t work like that. Xbox is its own division with its own budgets. Xbox handles all of its own budgets and profits and revenues and expenses. When they say they are profitable today with Game Pass and it represents around 10-15% of Xbox revenue they are referring to just Xbox. Which means profits have to be counted from within xbox and not transfers from MS.

You’ve claimed many times over that MS will just keep this loss leader afloat while tiny Sony can’t survive, but when you compare SIE to Xbox I assure you SIE is much larger than xbox. So I wanted to make clear that no, MS will not fund a failing division. MS will put their money elsewhere into divisions with more growth opportunity if Xbox cannot. This is why they axed Mixer despite investing huge amounts to bring streamers over.

And no, apparently I’m not smart enough to make that connection. Because MS didn’t become the wealthiest company in the world throwing money infinitely into loss for fun. Gaming doesn’t make anywhere close to the revenue that azure does. You over estimate how quickly MS will leave the market if they feel there is no value for them.

 

[Nesh]

my issue is that you think MS will transfer money to Xbox gaming division on a whim. It doesn’t work like that. Xbox is its own division with its own budgets. Xbox handles all of its own budgets and profits and revenues and expenses. When they say they are profitable today with Game Pass and it represents around 10-15% of Xbox revenue they are referring to just Xbox. Which means profits have to be counted from within xbox and not transfers from MS.

You’ve claimed many times over that MS will just keep this loss leader afloat while tiny Sony can’t survive, but when you compare SIE to Xbox I assure you SIE is much larger than xbox. So I wanted to make clear that no, MS will not fund a failing division. MS will put their money elsewhere into divisions with more growth opportunity if Xbox cannot. This is why they axed Mixer despite investing huge amounts to bring streamers over.

And no, apparently I’m not smart enough to make that connection. Because MS didn’t become the wealthiest company in the world throwing money infinitely into loss for fun. Gaming doesn’t make anywhere close to the revenue that azure does. You over estimate how quickly MS will leave the market if they feel there is no value for them.

I dont care what you think that I think

 

[iroboto]

I dont care what you think that I think

I’ll leave the topic alone. sorry

 

[Deleted member 11852]

I agree that this acquisition will be an extremely long J curve for Xbox if that is the perspective you want to take on it. But the affect of this M&A has large influence over the rest of the xbox business to contain it to just game pass and xcloud if that makes sense. It should boost Xbox across the board.

I'm not fussed about how you want you wan to define the Xbox business. There is GamePass, which that is also on Windows, and there is xCloud, which is largely platform agnostic, but to what degree that is significant outside of the existing Xbox platform owners/users/subscribers is questionable. What is unclear, is how this acquisition makes any sense in terms of generating profit for Microsoft's core gaming business unless you are looking at Microsoft's financial returns in 2065.

 

[BRiT]

What is unclear, is how this acquisition makes any sense in terms of generating profit for Microsoft's core gaming business unless you are looking at Microsoft's financial returns in 2065.

You have to do something with the excess cash on hand, as it sitting idle and unused meant it was losing value. So why not use it to acquire the largest valued assets?

 

[Johnny Awesome]

That's the way I think MS are looking at it. If I remember correctly ABK has like $24b in hard assets, so MS is really only paying $53b for ABK IP and human talent etc... For MS to get a 5% return on their money, which is a reasonable number for an alternative passive money strategy, ABK has to generate about $2.65b per year in income (5% of $53b). In 2021 they generated a net income of $2.699b. It's inline with expectations. MS likely intends to double that performance if possible over the next few years. I won't be surprised if ABK generates more than $5b a year for MS at some point.

We know that MS has $3b in GP revenue right now. Can adding ABK properties to GP double subscription adoption? Probably, especially on PC. They can likely do that while decreasing costs of development by making less CoD games even.

What do the Bethesda and ABK acquisitions have in common? They are both big on PC. Phil said they want to sell more PC GP subs. Makes sense to buy these publishers. That's also why they're making League of Legends deals as well. It's all about PC, and mobile where possible.

 

[eastmen]

I'm not fussed about how you want you wan to define the Xbox business. There is GamePass, which that is also on Windows, and there is xCloud, which is largely platform agnostic, but to what degree that is significant outside of the existing Xbox platform owners/users/subscribers is questionable. What is unclear, is how this acquisition makes any sense in terms of generating profit for Microsoft's core gaming business unless you are looking at Microsoft's financial returns in 2065.

wouldn't releases on steam and mobile also be considered part of xbox business ?

 

[iroboto]

Tangential but perhaps valid understanding of how or why MS (or Amazon, Netflix, and google) would want to own ABK for reasons outside of gaming.
the smaller and better the VR sets become but you want more visual fidelity the push into cloud based rendering increases. And to support that you would already need some form of massive low latency distribution. MS intends to be the infrastructure if they can’t be the “device” for such services. They can technically sell a service and learn from it via game pass subscribers to gain the funding they need to build it out and have users around the world constantly testing it.

Good video here by marques explaining facebooks declining situation.

 

[Nesh]

You have to do something with the excess cash on hand, as it sitting idle and unused meant it was losing value. So why not use it to acquire the largest valued assets?

That doesnt make much sense

 

[Nesh]

That's the way I think MS are looking at it. If I remember correctly ABK has like $24b in hard assets, so MS is really only paying $53b for ABK IP and human talent etc... For MS to get a 5% return on their money, which is a reasonable number for an alternative passive money strategy, ABK has to generate about $2.65b per year in income (5% of $53b). In 2021 they generated a net income of $2.699b. It's inline with expectations. MS likely intends to double that performance if possible over the next few years. I won't be surprised if ABK generates more than $5b a year for MS at some point.

We know that MS has $3b in GP revenue right now. Can adding ABK properties to GP double subscription adoption? Probably, especially on PC. They can likely do that while decreasing costs of development by making less CoD games even.

What do the Bethesda and ABK acquisitions have in common? They are both big on PC. Phil said they want to sell more PC GP subs. Makes sense to buy these publishers. That's also why they're making League of Legends deals as well. It's all about PC, and mobile where possible.

If by income you mean revenue, it is offset by expenses with potential losses or profits. Income means nothing in itself. "Only" 53 billion isn't only. Its still significantly huge. Plus they still need to see the total amount they spent