Activision Blizzard’s Effects of Sexual Harassment Made Microsoft Hunt for Acquisition Deal

Activision Blizzard approached other potential bidders but did not receive an offer, only Microsoft made an offer.

Late last year, when Activision Blizzard Inc. employees. and Chief Executive Officer Bobby Kotick were reeling from allegations that Kotick had known about sexual harassment at the company for years, a group of senior executives at Microsoft Corp. before Xbox head Phil Spencer contacts the embattled CEO. The goal, according to one person familiar with the case, was to provide support to a key partner and to clarify Microsoft’s concerns about the treatment of women at Activision Blizzard.

Another goal: to ensure that if Kotick and the board were willing to sell the company, Microsoft would be well positioned to make an offer. After a few phone calls over a period of two weeks, the discussions developed. Microsoft became interested in an acquisition.

That led to Tuesday’s announcement that Microsoft had struck a $68.7 billion deal to acquire Activision, adding a legendary game publisher responsible for franchises such as Call of Duty and World of Warcraft. It’s a combination that will catapult Microsoft into the highest ranks of game makers, give the company the mobile audience it has eluded for years, and add strength as the software giant and rivals race to build out the virtual reality platform known as the metaverse.

Although the events that paved the way for the eventual deal kicked off in mid-November, Microsoft’s senior executives had been hinting for months that they were looking for deals. In any case, CEO Satya Nadella had been looking for an acquisition since the summer of 2020 that would provide the software maker with a stable of consumer users. In November 2021, during an interview at the Paley International Council Summit, Spencer reiterated his often outspoken stance that he was on the hunt for acquisitions, noting that Xbox, in particular, wanted deals that added casual and social games – something offered by the mobile titles. from Activision. “We have a lot of ambition,” Spencer said at the top.

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Around the same time in November, pressure mounted on Activision after a Wall Street Journal story detailed allegations of rape at one of the game publisher’s studios and said Kotick had been made aware of the alleged incidents, which took place in 2016 and 2017, as well as a friendly settlement, and failed to report it to the board. The paper quoted interviews, company emails, regulatory requests and other internal documents showing that the CEO was aware of employee misconduct in many areas of the company. It also noted settlements involving cases where Kotick was charged with assault.

Following the explosive report, Spencer circulated an email within Microsoft saying that he was “evaluating all aspects of our relationship with Activision Blizzard and making ongoing proactive adjustments” in light of the revelations. The two companies have been working together for nearly two decades when Activision sold games for Microsoft’s Xbox console – the first Call of Duty was released for the original Xbox. In an email to Sirbpti News staff, Spencer said he and Microsoft’s leadership team were “disturbed and deeply disturbed by the horrific events and actions” at Activision. Other partners said they were evaluating their ties to Activision, and some investors and employees called for Kotick’s resignation. Kotick said in an interview with Sirbpti on Tuesday that the deal had nothing to do with the controversy surrounding Activision or the pressure on him as CEO.

Behind the scenes, Spencer worked on a merger approach. Microsoft’s pitch, as with its other major gaming deals, made heavy use of Spencer’s decades of industry experience. The executive joined Microsoft as an intern in 1988 after a stint with video games and PC equipment at a Computer Mart in Vancouver, Washington.

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But even as Activision fought to save its reputation with players and investors — its shares fell about 15% in the month after the Wall Street Journal article — and weighed up the potential acquisition, Kotick and the board were not sold to Microsoft as acquiring agents. party, said two people familiar with the matter. Activision called to find other interested parties, the people said, asking not to be identified while discussing private conversations. These included Facebook mother Meta Platforms Inc. and at least one other major company. But no other serious interest emerged. In an interview, Spencer declined to discuss how the deal went. A Meta spokesperson declined to comment and an Activision representative did not return requests for comment.

Responding to Activision’s hesitations, Microsoft backed off by telling the game publisher that it was happy to remain partners and work on selling more Activision titles on Xbox. In the end, Activision came back to the table and the teams from both companies worked through the holidays to close the deal. Microsoft pulled Dan Dees from Goldman Sachs Group Inc. in and Activision hired Nancy Peretsman at Allen & Co. While Nadella was involved when necessary, the bulk of the merger talks took place between Spencer and Kotick, the person said.

The companies kept a close eye on the negotiations, although Spencer was offended about Microsoft’s relationship with Activision during a New York Times podcast posted on Jan. 10. publicly about it,” Spencer told interviewer Kara Swisher. “We’ve changed the way we do certain things with them and they know it. So it’s not about putting other companies to shame.” He also refrained from personally criticizing Kotick. “In terms of individuals leading other companies, it’s not in our position to judge who the CEOs are,” Spencer said. “CEOs are elected by shareholders and boards.”

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Nadella’s first acquisition as CEO, the $2.5 billion purchase of Minecraft in 2014, also came about thanks to Spencer’s relationship with that game’s creator, Markus Persson, known to gamers as Notch. Persson went straight to Spencer when he wanted to sell Minecraft, which was previously privately owned and considered one of the best-selling games of all time. Spencer has also personally negotiated the acquisition of ZeniMax Media Inc., owner of legendary video game publisher Bethesda Softworks, for $7.5 billion by Microsoft, in 2020 with that company’s co-founder Robert A. Altman.

While Microsoft was discussing the Activision deal, another major video game company was making its own mobile game. Last week, Take-Two Interactive Software Inc. entered into an agreement to buy mobile game maker Zynga Inc. for $11 billion. Bankers working on that deal contacted Microsoft to see if they were interested in an offer for Zynga before Take-Two sealed the deal, the person said. Microsoft hesitated.

As it turned out, Microsoft had its sights set on something bigger.

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