Microsoft's acquisition of Activision is a 'smart deal' as the tech giant homes in on gaming as the earliest money-making opportunity in the metaverse, Wedbush says

• Microsoft's proposed $69 billion acquisition of Activision Blizzard is a "smart deal," says Wedbush analyst Dan Ives.
• "The deal will help jump start MSFT's broader gaming endeavors and ultimately its move into the metaverse," Ives said.
• The merger would be the biggest tech deal ever, ahead of Dell's $67 billion EMC buyout in 2016.
• Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Microsoft's proposed $69 billion acquisition of Activision Blizzard is a "smart deal" that will catapult the software giant further into the metaverse, Wedbush analyst Dan Ives said in a note on Tuesday.

The merger sent shares of Activision soaring as much as 38% in Tuesday trades, as it would be the largest deal in tech history, surpassing Dell's $67 billion acquisition of EMC in 2016.

If approved, Microsoft will gain ownership of core video game franchises including Call of Duty, Warcraft, and Candy Crush, among many others.

This represents "an aggressive consumer acquisition" that will diversify Microsoft's revenue mix away from business to business software sales, according to Ives, who notes that Microsoft CEO Satya Nadella had previously taken a "treadmill approach" to its consumer strategy.

But Activision's 40% stock price decline due to workplace harassment lawsuits and concerns about the company's culture presented a "window of opportunity" for Microsoft to "propel its consumer strategy forward," the note said.

This isn't Microsoft's first buyout of a video game company, with the Redmond-based software provider acquiring Zenimax for $7.5 billion last year, and Minecraft for $2.5 billion in 2014.

"Acquiring Activision will help jump start Microsoft's broader gaming endeavors and ultimately its move into the metaverse with gaming the first monetization piece of the metaverse," Ives explained.

And Microsoft is in a unique position to get this deal done from a regulatory standpoint, according to Ives. Microsoft's run-in with anti-trust regulators in 2000 means it is more likely able to get the deal done than if Apple or Alphabet attempted to acquire Activision.

"From a regulatory perspective, Microsoft is not under the same level of scrutiny as other tech stalwarts and ultimately Nadella saw a window to make a major bet on [the] consumer while others are caught in the regulatory spotlight and could not go after an asset like this," Ives said.

If the deal is not approved by regulators, Microsoft will owe Activision a hefty $3 billion breakup fee. "While we expect this deal to ultimately clear regulators, however there will be some inherent speed bumps navigating both the beltway and Brussels on a tech deal of this size," Ives said.