Microsoft Corp. touched off a video game industry earthquake with its agreement to buy the parent company of Irvine-based Blizzard Entertainment.
It may take a while for the tsunami to hit Orange County, one of the country’s largest hubs for the gaming industry.
Microsoft (Nasdaq: MSFT) said Jan. 18 it plans to buy Activision Blizzard Inc. (Nasdaq: ATVI) of Santa Monica in an all-cash deal valued at $68.7 billion. It’s reported to be the largest-ever all-cash purchase of a U.S. company.
While Microsoft’s latest push into the rapidly expanding global gaming industry rocked Wall Street, insiders cautioned it could take a while to implement. The acquisition of one of the largest public companies based in Southern California may not close until June of next year, and until then, the two businesses and its respective units will continue to operate independently.
“The deal will take some time to close,” said Tim Morten, the chief executive of Irvine-based video game upstart Frost Giant Studios. Morton previously managed production for Blizzard’s popular StarCraft franchise.
“My understanding is that people at Blizzard are being told to expect the transition” in June 2023, he said.
Blizzard Entertainment is Orange County’s largest software company by employee count, with approximately 2,700 local workers. So far there is no word on how they will fare under the new arrangement.
“Until transaction close, which we anticipate to be in Microsoft’s fiscal year ending June 2023, it remains business as usual and both companies will continue to operate independently,” Activision Blizzard told the Business Journal in a statement on Jan. 19.
Irvine’s Blizzard is no stranger to changes in ownership, with numerous sales and buyouts for it and its parent companies since its founding in the early 1990s.
The last change took place in 2013, when Activision Blizzard split from French media group Vivendi in an approximately $8 billion buyout.
At the time, the combined company’s revenue was around $4.6 billion; by 2020 that figure was closer to $8 billion, with Blizzard Entertainment’s operations making up about a quarter of its total revenue.
Microsoft, based in Redmond, Wash., noted last week that 3 billion people actively play video games today, a figure that’s risen rapidly over the pandemic.
“Gaming is now the largest and fastest growing form of entertainment,” Microsoft said in its statement announcing the deal.
While Activision shares climbed 26% in the trading session to around $82 a piece, that is still lower than the $95 price Microsoft said it will pay, indicating that some investors doubt the deal will close.
Microsoft has a modest presence in Orange County with an estimated 150 employees at its Irvine office, ranking it No. 17 by local headcount on the Business Journal’s most recent list of software companies.
It knows well OC’s gaming environment. In 2018, it bought two local independent studios: Obsidian Entertainment Inc. in Irvine and inXile Entertainment Inc., now located at the Flight office campus in Tustin.
“Historically, Microsoft hasn’t substantially scaled its game studio acquisitions (OC game studios InXile and Obsidian are examples), but I’m sure there’s still a lot to be decided,” according to Frost Giant’s Morten.
Mark Thimmig, founder, chairman and CEO at locally based Esportz Entertainment Corp., a media company that covers the gaming industry, also recommends a wait-and-see stance regarding any local changes.
“I fully expect this acquisition to take several months before Microsoft and Activision complete a plan to leverage the strengths of both companies’ many points of collaboration and integration,” Thimmig told the Business Journal on Jan. 19.
The planned acquisition includes iconic franchises from the Activision, Blizzard and King studios such as World of Warcraft, Diablo, Overwatch, Call of Duty and Candy Crush, in addition to global esports activities through Major League Gaming.
“This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud,” Microsoft said. “When the transaction closes, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent and Sony.
China’s Tencent recently set up a local hub in Irvine.
Blizzard Entertainment’s cluster of offices in Irvine, primarily along Alton Parkway, totals nearly 720,000 square feet, its parent company previously disclosed in regulatory filings. That makes it one of the largest office tenants in OC, along with Broadcom and Anduril Industries.
Blizzard leases most of its main Irvine offices from Irvine Co. and Olen Property Corp.
A commercial real estate brokerage source familiar with Blizzard’s local operations cautioned against looking for any major changes in real estate needs immediately.
“We don’t have any idea what they’re going to do, and the truth of it is, they don’t really know what they’re going to do either,” the source told the Business Journal on Jan. 19.
Don’t expect to see any immediate impact on local commercial rents as a result of sale.
“Over the immediate future, the next 12 to 18 months, it’s not going to have any material impact on rent because it’s not clear what’s going to happen, and there are several years left on both their (main) leases,” the source said.
In a memo sent to employees last week, parent company Activision said that “we are still working to finalize the specifics of the future organization,” in a query related to whether any offices or studios will be closed or moved as a result of the transaction.
The same memo said that Microsoft “has made it clear that they want to preserve and grow the value that Activision Blizzard brings, and that includes the talented team at Activision Blizzard,” in a query related to potential job cuts post-sale.
In regards to the well-publicized charges of sexual harassment and other misconduct at the company, which led to a July 28 worker walkout in Irvine, and a subsequent shake-up in operations and executives at Blizzard’s local campus, Activision said its “leadership team has discussed the company’s goals at length with Microsoft, and Microsoft has reviewed the renewed culture commitment and actions we have done so far, and the efforts they’ve undertaken. Microsoft is supportive of the goals and the work being done.”
Microsoft shares, which have gained 35% over the last year, closed at $303.33 at press time and a $2.3 trillion market cap.