M
MSFT × ATVI
M&A Deal Analysis
Pitch Deck · 12 Slides

Project Phoenix — Investment Memo

Investment Banking pitch deck as it would be presented to a Managing Director. Use the deck below to walk through thesis, valuation, financing and risks.

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Cover

Project Phoenix — Strategic Acquisition of Activision Blizzard

Confidential investment recommendation prepared for the Microsoft Corporate Development Committee. January 2022.

Buy-side advisor: Project IB Analyst Team. Target: Activision Blizzard, Inc. (NASDAQ: ATVI).

RecommendationPROCEED
Offer$95.00 / share
EV$68.7B
Confidential — Project PhoenixMicrosoft / Activision Blizzard
02 / 12
Executive Summary

One-page snapshot of the recommendation

  • Acquire 100% of ATVI for $95.00 / share in cash, implying $68.7B EV (22.5x LTM EBITDA).
  • DCF supports $84–$99 / share central range; comps and precedent transactions bracket the offer.
  • $1.2B run-rate cost & revenue synergies (Game Pass attach, ad-platform leverage, cloud infra).
  • EPS accretive in Year 2; cash-financed with $40B bridge facility refinanced post-close.
  • Key risks: FTC / CMA / EC clearance, console-exclusivity remedies, talent retention.
Confidential — Project PhoenixMicrosoft / Activision Blizzard
03 / 12
Strategic Rationale

Why Activision, why now

Content moat

World-class IP: Call of Duty, World of Warcraft, Candy Crush. Combined library exceeds Sony PlayStation Studios scale.

Game Pass flywheel

ATVI titles accelerate subscriber growth toward 100M+; lifts LTV per Xbox household.

Mobile gap closed

Candy Crush / King delivers Microsoft instant scale in mobile gaming, a $100B+ TAM Microsoft does not meaningfully serve today.

Confidential — Project PhoenixMicrosoft / Activision Blizzard
04 / 12
Industry & Market

$200B+ gaming TAM, structurally growing

  • Global gaming market: ~$184B (2022) → ~$250B (2027E), 6% CAGR — outpacing film and music combined.
  • Subscription & cloud gaming the fastest-growing segments (20%+ CAGR).
  • Industry consolidation accelerating: 2022 saw >$100B in announced gaming M&A.
  • Microsoft currently #3 in console (behind Sony, Nintendo); ATVI flips Microsoft to #3 in pure-play gaming revenue globally.
Confidential — Project PhoenixMicrosoft / Activision Blizzard
05 / 12
Target Overview

Activision Blizzard at a glance

  • Three segments: Activision (CoD), Blizzard (WoW, Diablo, Overwatch), King (Candy Crush).
  • FY22 Revenue $7.5B · EBITDA $2.7B · MAU ~365M.
  • ~$10B net cash on balance sheet — adds to deal accretion.
  • Workplace culture issues create discount opportunity vs intrinsic value.
Mkt Cap (undisturbed)$50.6B
Net Cash$10.4B
EV$40.2B
LTM EBITDA$2.7B
EV / EBITDA14.9x
3Y Revenue CAGR11.8%
Confidential — Project PhoenixMicrosoft / Activision Blizzard
06 / 12
Valuation — DCF

Discounted Cash Flow: $84–$99 / share

  • 5-year explicit UFCF forecast off bottoms-up segment revenue build.
  • WACC 8.38% (CAPM, β=0.95, ERP 5.5%, Rf 4.3%); perpetuity growth 2.5%.
  • Implied EV $62.1B + $10B net cash = $72.1B equity → $91.85 / share.
  • Football field places $95 offer mid-range of all four methodologies.
Confidential — Project PhoenixMicrosoft / Activision Blizzard
07 / 12
Valuation — Comps

Trading at premium to gaming peers, in-line vs precedents

  • Gaming peer median 17.2x EV/EBITDA; ATVI offer at 22.5x reflects scarcity premium for top-tier IP.
  • Precedent gaming M&A multiples 8–22x — Take-Two/Zynga at 18.9x is the most comparable recent benchmark.
  • 45% premium to undisturbed price is consistent with strategic premia (Take-Two/Zynga 64%, King/Activision 20%).
Confidential — Project PhoenixMicrosoft / Activision Blizzard
08 / 12
Synergies

$1.2B run-rate by Year 3

Revenue synergies (~$750M)
  • • Game Pass attach uplift on 25M+ subs
  • • Xbox Cloud Gaming distribution
  • • Mobile cross-sell via Azure PlayFab
Cost synergies (~$450M)
  • • Public-co opex elimination (~$120M)
  • • Azure migration savings (~$180M)
  • • Shared engineering & publishing (~$150M)

Realised over 36 months; ~$800M one-time integration cost.

Confidential — Project PhoenixMicrosoft / Activision Blizzard
09 / 12
Financing

All-cash, investment-grade balance sheet preserved

  • Funded with existing $130B+ cash & equivalents + $40B bridge facility.
  • Bridge refinanced post-close with senior notes — pro-forma leverage ~1.2x EBITDA, IG ratings reaffirmed.
  • No equity issuance — avoids dilution to MSFT shareholders.
  • Accretive to GAAP EPS in Year 2; cash-flow accretive at close.
Confidential — Project PhoenixMicrosoft / Activision Blizzard
10 / 12
Risks

Regulatory & integration are the binding constraints

Regulatory (HIGH)

FTC, CMA, EC review. CoD console-exclusivity is the key remedy lever. Mitigant: 10-year CoD licensing agreements with Sony/Nintendo.

Integration (MED)

Cultural overhaul required; ATVI HR remediation ongoing. Run as autonomous unit under Phil Spencer.

Talent retention (MED)

Studio leadership retention pool; performance-based equity rollover.

Console exclusivity (LOW-MED)

Public commitment to keep CoD multi-platform reduces antitrust exposure but caps synergy upside.

Confidential — Project PhoenixMicrosoft / Activision Blizzard
11 / 12
Post-Merger Integration

100-day plan

  • Day 1: ATVI reports into Microsoft Gaming (Phil Spencer); Bobby Kotick transitions out.
  • Day 30: Synergy office stood up; tracking dashboards across 14 workstreams.
  • Day 60: Game Pass roadmap published — first ATVI titles by H2.
  • Day 100: Initial cost actions executed; Azure migration plan finalized.
  • Y1: Run-rate $400M synergies; Y2 $850M; Y3 $1.2B.
Confidential — Project PhoenixMicrosoft / Activision Blizzard
12 / 12
Recommendation

PROCEED — at $95.00 / share, $68.7B EV

  • Valuation supported by all three methodologies; offer in mid-range.
  • $1.2B synergies create $12–15B of incremental NPV vs standalone.
  • Accretive in Year 2; balance sheet preserved at IG.
  • Regulatory pathway de-risked via 10-year CoD licensing commitments.
  • Final recommendation: ANNOUNCE.
Confidential — Project PhoenixMicrosoft / Activision Blizzard