Two months ago, The Wall Street Journal published a bombshell report accusing Activision Blizzard CEO Bobby Kotick of widespread mismanagement surrounding the sexual assault and discrimination allegations and lawsuits embroiling the company. Now, new reports suggest that the aftershocks of that November reporting were key to bringing Microsoft and Activision together for an industry-changing $68.7 billion acquisition deal, first announced Monday.
That timeline is according to behind-the-scenes reports from The Wall Street Journal and Bloomberg, both of which suggest the deal came together quickly in the two months following the Journal’s November report on Kotick.
According to “a person familiar with the matter” cited by Bloomberg, Microsoft initially reached out in part to offer support and address “concerns about the treatment of women at Activision” after that report. But Microsoft also wanted “to ensure that if Kotick and the board were willing to sell the company, Microsoft would be well positioned to make an offer,” as Bloomberg put it.
After months of damaging headlines, Activision’s stock price, which peaked at $103.81 in February, had fallen to just $65.39 as of last Friday. That may have played a part in what Bloomberg describes as “Microsoft look[ing] at Activision’s situation, given all the negative attention and pressure on Kotick, and wonder[ing] if the beleaguered CEO would be willing to do a deal.”
Activision sought out other offers after Microsoft’s initial approach, according to Bloomberg’s report, including talks with Facebook parent company Meta. But when “no other serious interest materialized,” as Bloomberg put it, Microsoft and Activision reportedly “worked through the holidays” to get the deal done, with Kotick and Microsoft Gaming CEO Phil Spencer doing the bulk of the high-level negotiating.
“While there were—there are—a lot of other companies that would be interested in a company like ours, Microsoft was clearly the company that made the most sense,” Kotick said in a joint CNBC interview alongside Spencer yesterday.
In that same interview, Spencer allowed that “this is a deal that happened pretty quickly… I’d say we really had some formative discussions about this specific opportunity late in the year, and we just felt like now was the right time to add the right resources and capability to both companies.”
A graceful exit?
Spencer has been quite public about Microsoft’s interest in massive gaming acquisitions for a while, and the Journal reports that he had discussed a potential deal with Activision in the past. But Kotick was “cool to the idea until Microsoft offered him a graceful exit,” according to the Journal’s sources.
Such an exit could be quite lucrative for Kotick; his share of the company is worth over $400 million at Microsoft’s offered cash price of $95 a share. Activision could also owe Kotick up to $300 million if he’s terminated without established cause, though it’s unclear how the merger deal might affect that contractual clause.
A separate Bloomberg report cites “a person familiar with the talks” in corroborating that “Kotick initially didn’t want to sell.” But that report also suggests that “Kotick had little leverage with his board amid the ongoing public scrutiny at his company.”
The Journal’s sources also said that Activision board members who had publicly offered Kotick their support “were individually beginning to get anxious” about his status as the head of the company after November’s report. More than that, “in recent weeks, some directors came to the realization that the public backlash may continue and Mr. Kotick might be forced to resign,” according to the Journal.
Bloomberg wrote that Kotick mentioned in an interview that “the deal has nothing to do with the controversy surrounding Activision or calls for him to step down.” A spokesperson for Activision also told the Journal that “the board didn’t consider Mr. Kotick’s status in unanimously approving the Microsoft transaction” and also disputed the specific timeline cited in the report.