Key Takeaways
- • Private equity firms reportedly explored a joint acquisition of Microsoft's Xbox gaming division at a valuation between $100 billion and $150 billion, according to The Information, though discussions never progressed to formal negotiations with Microsoft.
- • Microsoft says Xbox is not for sale, with CEO Asha Sharma stating "Xbox is not for sale" and that the company will pursue the right partnerships and operating model to achieve success.
- • Xbox revenue fell 7% to $21.8 billion in the fiscal year ending June, with hardware revenue down 29% and content and services down 5%, while the internal accountable margin reportedly dropped to 3%.
- • Sharma has cut 3,200 jobs since July and launched Xbox XP and Xbox Labs as part of a restructuring effort under pressure from Microsoft CEO Satya Nadella to return the division to growth.
- • The upper end of the reported valuation is nearly three times the $55 billion Electronic Arts buyout by Saudi Arabia's Public Investment Fund, Silver Lake, and Affinity Partners, and well above Microsoft's roughly $70 billion Activision Blizzard acquisition.
Summary
Private equity firms reportedly explored buying Microsoft's Xbox gaming division at a valuation of between $100 billion and $150 billion, according to a new report from The Information. The discussions never advanced to formal negotiations with Microsoft, though several firms examined a potential joint acquisition. The Information did not specify which assets would have been included in the valuation. The upper end of that range is nearly three times the $55 billion paid for Electronic Arts in a deal completed in August by Saudi Arabia's Public Investment Fund, Silver Lake, and Affinity Partners, and well above the nearly $70 billion Microsoft paid for Activision Blizzard.
Microsoft has rejected the prospect. CEO Asha Sharma has previously said "Xbox is not for sale," adding that the company "will do whatever it takes to set the company up for success" and will "look at the right partnerships, the right operating model, and everything needed to achieve that." In an interview with Fortune, she said Xbox would "be an important part of Microsoft for a very long time."
Fortune separately reported that several current and former employees believe Xbox is being prepared for a potential sale, spin-off, outside investment, or conversion into a subsidiary, and that some were aware of a high-level presentation exploring those scenarios. Microsoft commercial chief Judson Althoff pushed back, arguing the company would not place one of its best executives in charge of a business it planned to sell.
Financially, Xbox revenue fell 7% to $21.8 billion in the fiscal year ending June, with hardware revenue down 29% and content and services down 5%. The division's internal accountable margin reportedly fell to just 3%, a thin return for a unit that includes Activision Blizzard. Sharma has been reshaping the business under pressure from Nadella to return it to growth, beginning with 3,200 job cuts in July, with further layoffs reportedly still to come. She has also established Xbox XP to expand franchises into film and television and Xbox Labs to explore new technology.
Nothing currently indicates Microsoft has entertained an offer, and any buyer would face a steep path. Few firms could finance a deal of $100 billion or more alone, making a consortium the more likely structure.
Microsoft has rejected the prospect. CEO Asha Sharma has previously said "Xbox is not for sale," adding that the company "will do whatever it takes to set the company up for success" and will "look at the right partnerships, the right operating model, and everything needed to achieve that." In an interview with Fortune, she said Xbox would "be an important part of Microsoft for a very long time."
Fortune separately reported that several current and former employees believe Xbox is being prepared for a potential sale, spin-off, outside investment, or conversion into a subsidiary, and that some were aware of a high-level presentation exploring those scenarios. Microsoft commercial chief Judson Althoff pushed back, arguing the company would not place one of its best executives in charge of a business it planned to sell.
Financially, Xbox revenue fell 7% to $21.8 billion in the fiscal year ending June, with hardware revenue down 29% and content and services down 5%. The division's internal accountable margin reportedly fell to just 3%, a thin return for a unit that includes Activision Blizzard. Sharma has been reshaping the business under pressure from Nadella to return it to growth, beginning with 3,200 job cuts in July, with further layoffs reportedly still to come. She has also established Xbox XP to expand franchises into film and television and Xbox Labs to explore new technology.
Nothing currently indicates Microsoft has entertained an offer, and any buyer would face a steep path. Few firms could finance a deal of $100 billion or more alone, making a consortium the more likely structure.
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