Microsoft sets record for biggest tech deal ever, topping Dell-EMC merger in 2016
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Satya Nadella, CEO of Microsoft. Charles Pertwee | Bloomberg | Getty Images

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Microsoft still has to win approval from Activision's shareholders and, more importantly, from regulators. Two recent mega-deals in the semiconductor industry — Nvidia's effort to buy Arm and AMD's agreement to purchase Xilinx — have both been held up in regulatory review for over a year. For Microsoft, the purchase price is more than double what the 47-year-old company has ever paid. Its top previous acquisition was LinkedIn in 2016, which cost over $26 billion. But Nadella, who succeeded Ballmer as Microsoft CEO in 2014, has the capital to spend and an investor base that's urging him to be aggressive.

Proportionally small

At the time of the LinkedIn announcement, Microsoft was valued at about $400 billion, so the purchase amounted to roughly 6.5% of its market cap. When it tried to buy Yahoo, Microsoft's market cap was around $260 billion, meaning it would've been giving up almost 20% of the company. Today, Microsoft has a valuation of almost $2.3 trillion and is paying just 3% of its market cap for Activision. Rather than using its increased stock value, Microsoft is paying Activision investors in cash. It's a hefty load, but Microsoft can afford it. As of Sept. 30, the company was sitting on $130 billion in cash and equivalents, with 85% of that in the form of short-term investments. Microsoft's purchase price is a 45% premium over Activision's closing price on Friday. But Microsoft investors seem fine with it. The stock fell just 2.4% on Tuesday — in line with many other tech stocks in an overall down day for the market. That's partly due to Nadella's proven success in integrating previous acquisitions, including LinkedIn and GitHub, which Microsoft bought for $7.5 billion in 2018. But it's more a reflection of the excitement around gaming and Microsoft's potential to expand its presence beyond the Xbox and its existing subscription service called Game Pass.

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