This week, Microsoft turned heads in the gaming industry when it announced plans to acquire Activision Blizzard (NASDAQ: ATVI), a game publishing giant whose franchises include Call of Duty, Candy Crush, and Crash Bandicoot. Microsoft will pay $68.7bn in cash for Activision, marking the biggest acquisition in the gaming industry and tech industry at large.

Microsoft’s buyout is a significant redemption for Activision, which lately has been grappling with controversies and backlash stemming from extensive sexual harassment allegations from current and former employees. It’s a greater redemption for Bobby Kotick, Activision’s long-time CEO. Amid the company’s woes, an influential group of shareholders has pressured him to step down, but to no avail.

• Thanks to his sizable Activision stake, Kotick is in line for a massive payday with Microsoft’s buyout. As CEO for 31 years, Activision has compensated him heftily and mostly with shares. Despite his blemishes, Activision has grown enormously under his leadership from a small-time game developer for Atari consoles into a company with nearly $10bn in annual sales.

• According to securities filings, Kotick owns 3.95 million Activision shares. With the $95 of cash Microsoft is paying for each share, he will receive around $375mn in cash from the deal. Also, he has some unvested shares awarded as part of his compensation package worth at least $15mn at $95 a share. This means Kotick will walk away with at least $390mn from Microsoft’s buyout, a huge payday.

Kotick may have been set for an even bigger payday if not for a voluntary salary cut he took last October. It’s not like it was a virtuous move; instead done in response to shareholder backlash after extensive sexual harassment and discrimination claims brought government attention to the company. Kotick was awarded $155mn in pay in 2020, mostly from stock awards tied to incentives. He reduced it to $62,500, the minimum salary requirement in California.

If Kotick held onto his unvested stock awards, Microsoft would have had to buy them out.

• Activision is Microsoft’s biggest acquisition since inception. It’s a bold bet from the company, which already has an extensive gaming business with the Xbox brand of consoles and 29 game development studios under its belt. Microsoft is effectively buying its way into becoming the third-largest gaming company by revenue, behind China’s Tencent and Japan’s Sony.

• Microsoft is also betting on antitrust regulations not hindering the Activision deal. If regulators don’t let the deal proceed, it has committed to paying Activision a $3bn breakup fee.

In a press statement announcing the acquisition, Microsoft said Kotick would “continue to serve as CEO,” but it’s unclear if that’s during the transition or after the deal closes. Separately, reports have emerged that Kotick plans to step down once the purchase goes through.

Upon closing the acquisition, the Activision Blizzard business will report to Phil Spencer, current head of Microsoft Gaming. Microsoft expects the buyout to take 18 months from start to finish.

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