At September 30 last year Microsoft had more than $US130 billion in cash and securities on its balance sheet – a figure that almost certainly grew during the final months of the year.
On Tuesday, the great tech survivor found a use for just over half of that with the $US68.7 billion all cash acquisition of gaming group, Activision Blizzard.
It was the most expensive acquisition in the gaming industry set by Take-Two Interactive, which purchased Zynga for $US12.7 billion.
The all-cash offer means the deal will happen and won’t be disturbed by the sharp sell off on Wall Street on Tuesday, the first back from the long weekend.
That saw the Dow lose 543.34 points, or 1.5%, to close at 35,368.47. The S&P 500 dropped 1.8% to 4,577.11, and the Nasdaq slumped 2.6% to 14,506.90, hitting its lowest level in three months.
That means the Nasdaq now sits in correction territory, being more than 10% from its most recent high and closed below its 200-day moving average for the first time since April 2020. That is usually an indicator of more weakness to come.
Markets dropped after Goldman Sachs reported disappointing 4th quarter figures (with a 23% surge in costs because of huge bonuses paid to staff for last year) – its shares fell nearly 7% and took the rest of the market lower as key bond yields popped higher ahead of next week’s first Federal Reserve meeting of the year.
The closely watched 2-year yield broke above 1% for the first time since February 2020, the month before the pandemic started – it is seen as a indicator of where the Federal Reserve will set short-term borrowing rates.
Rates rose along the yield curve, with the benchmark 10-year note topping 1.87%, its highest since January 2020. The 10-year yield started 2022 around 1.5%, so the selloff in the past two- and a-bit weeks has been solid.
That all tended to swamp the early headlines lauding the deal announced by Microsoft.
It’s one of biggest ever and set to be the largest all-cash acquisition on record, will bolster its firepower in the booming videogaming market where it takes on leaders Tencent and Sony and sets the company up to be a play in the metaverse – where the old Facebook, now Meta Platforms – is heading.
Microsoft has so far avoided the type of scrutiny faced by Google and Facebook but this deal, which would make it the world’s third largest gaming company, will put the Xbox maker on lawmakers’ radars, Andre Barlow of the law firm Doyle, Barlow & Mazard PLLC told Reuters.
“Microsoft is already big in gaming,” he added.
Microsoft would pay a $US3 billion break-fee if the deal falls through, suggesting it is confident of winning antitrust approval.
The tech major’s shares fell 2.3% reflecting some unease among shareholders about the eventual shape of the outcome, not the cost.
The deal comes at a time of weakness for Activision, maker of games such as “Overwatch” and “Candy Crush”.
Before the deal was announced, its shares had slumped more than 37% since reaching a record high last year, hit by allegations of sexual harassment of employees and misconduct by several top managers.
The company says it is still addressing those allegations and on Monday revealed it had fired or pushed out more than three dozen employees and disciplined another 40 since July.