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The controversial publisher of the smash-hit Call of Duty video game series is being bought by Microsoft in a record $69bn (£51bn) deal.
Activision Blizzard is being snapped up in an all-cash takeover that will hand almost $400m to its chief executive, Bobby Kotick. He has been accused of presiding over a culture of sexual harassment and misconduct claims and once threatened to have an assistant killed.
The deal is the biggest struck by Microsoft and will transform the Xbox console maker into the world's third-largest games company, amid a scramble to dominate virtual reality worlds such as Facebook's Metaverse.
Activision shares rose more than a quarter to almost $82, prompting a rally of video game stocks on the London market as investors bet that the takeover would put British companies in the crosshairs of overseas rivals seeking to bolster their roster of titles. Zoo Tycoon and Elite Dangerous producer Frontier Developments climbed 5pc.
It marks one of the biggest deals for content in history, falling just $2bn short of Disney's $71bn takeover of Rupert Murdoch's 21st Century Fox.
The takeover follows a concerted effort by Activision to clean up its image. The company has reportedly ousted more than 30 staff and disciplined 40 others since the summer amid allegations over sexual harrassement and other forms of misconduct.
It followed sustained pressure from staff, clients and investors, after as many as 700 reports were made over misconduct problems within the business, including an allegation that one female employee was raped by her male supervisor in 2016 and 2017 that Activision settled out of court.
Activision was served with a harassment lawsuit from a California state agency in July.
Meanwhile, Mr Kotick, who has spent more than 30 years with the business, has been accused of failing to tell the board about sexual misconduct allegations he knew about, while facing his own allegations of impropriety. Mr Kotick's assistant complained in 2006 that he left a voicemail threatening to have her killed.
Activision said the Wall Street Journal, which first reported the claims, gave a misleading view of Mr Kotick and the business. Mr Kotick has previously said that he regretted the alleged incident with the assistant, but had always been transparent with the board.
Microsoft said when the deal was announced that Mr Kotick would remain with the business as chief executive, but the Journal subsequently reported that he had agreed to leave when the deal completes.
The takeover follows a surge in demand for subscription streaming services, gaming and home entertainment in the wake of lockdown.
Satya Nadella, chief executive of Microsoft, said: “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.”
Microsoft is seeking to step up its battle with Sony and diversify revenues beyond its colossal cloud computing business by becoming a significant developer and publisher of games across console, PC and mobile. It has previously struggled to match Sony's track record of creating critically-acclaimed exclusive titles that have driven PS4 and the PS5 console sales.
The swoop will bring popular Activision series such as Call of Duty, World of Warcraft, Crash Bandicoot, Overwatch and Candy Crush under the control of Microsoft Gaming.
Activision titles will be made available on Microsoft Game Pass, where more than 25m players pay monthly for a vast back catalogue of new and old titles.
Call of Duty Warzone, the hugely popular free-to-play online shooter, was an enormous hit across XBox, Playstation and PC during lockdown, amassing more than 30m players.
The Call of Duty franchise, which dates back to 2003, now encompasses 19 games. It has occasionally courted controversy alongside critical and commercial success, notably in a level of Modern Warfare 2 in which the player takes part in a mass shooting at an airport.
Microsoft's takeover plan has prompted speculation that it may struggle to win the backing of competition regulators, amid fears the company might seek to curtail Sony's access to Activision's titles. Microsoft has agreed to pay a $3bn break-up fee if the plan is blocked.
Daniel Ives, an analyst at Wedbush, said: "We expect this deal to ultimately clear regulators, however there will be some inherent speed bumps navigating both the Beltway and Brussels on a tech deal of this size."
The transaction comes hot on the heels of Take-Two's $13bn (£9.6bn) takeover of FarmVille owner Zynga, in a huge bet on the future of mobile gaming. Take-Two, the video games publisher behind the Grand Theft Auto series, plans to transform its biggest console hits into smartphone spin-offs by creating one of the industry's largest mobile game publishers with sales of just over $6bn.
Electronic Arts, publisher of the Fifa football series, also sealed an £860m takeover of London-listed Codemasters in February, while China’s Tencent bought Sackboy developer Sumo Digital for $1.3bn in July.
Call of Duty and World of Warcraft are considered blockbuster franchises in the gaming world, with player bases stretching into the tens of millions and the prospect of a long train of sequels and spin-offs. The former is considered one of the industry's most violent video games series, sparking controversy over its Modern Warfare 2 title in 2009, where a player participates in a mass shooting inside an airport.
The takeover comes after Microsoft sealed a $7.5bn deal in March for ZeniMax Media, the parent company behind video game hits Doom and Fallout. It promised to create more exclusive titles for Xbox and PC gamers following the tie-up.
Following Microsoft's latest swoop, Mr Kotick wrote in an email to staff that he would continue "with the same passion and enthusiasm I had when I began this amazing journey in 1991". He added: "Now it's on to our next chapter and the endless possibilities this transaction represents for us."
Regardless of whether Mr Kotick remains in charge of Activision, overall control of the business will fall to Phil Spencer, chief executive of Microsoft Gaming.
The $95 a share offer marks a 45pc premium of Activision's closing share price and far outweighs Microsoft's previous mega-deals, including the $26.2bn it paid for the business networking app LinkedIn and $8.5bn for the video-calling service Skype.