Microsoft's acquisition of LinkedIn surpasses the Dell-EMC merger in 2016, establishing a new record for the largest tech deal ever.

• The acquisition of Activision Blizzard by Microsoft for nearly $69 billion marks the highest price ever paid by a U.S. tech company.
• In 2016, Dell acquired EMC for $67 billion, which was their largest prior deal.
• Despite the company's market cap increasing by $1 trillion in the past year, the record price only represents a small portion of Microsoft's overall valuation.

In 2008, Steve Ballmer, the then-CEO of Microsoft, attempted to set a record by pursuing plans to acquire Yahoo for approximately $50 billion. This deal would have surpassed JDS Uniphase's $41 billion purchase of SDL in 2000, making it the largest U.S. tech deal in history.

Unfortunately for Yahoo, Microsoft repeatedly rejected its bid, and it was eventually trounced by Google in internet search, ultimately selling for $4.5 billion to Google in 2017.

Microsoft is being attempted to be put in the deal record book by Satya Nadella.

Microsoft announced on Tuesday that it will acquire video game publisher for nearly $69 billion, surpassing the richest U.S. tech deal in history. In 2016, Dell purchased EMC for $67 billion. The JDS-SDL deal followed, with a $34 billion acquisition of Red Hat in 2019.

Microsoft is yet to obtain approval from Activision's shareholders and regulators for the acquisition. Two recent major deals in the semiconductor industry, including the attempt to acquire Arm and the agreement to purchase NVIDIA, have been delayed in regulatory review for over a year.

Microsoft's latest acquisition cost more than twice its previous record purchase price. Its top previous acquisition was LinkedIn in 2016, which cost over $26 billion.

Since Nadella became Microsoft CEO in 2014, he has the financial resources to invest and his investor base is pushing him to be bold.

Proportionally small

The purchase of Yahoo by Microsoft would have represented approximately 20% of Microsoft's market cap at the time, while the acquisition of LinkedIn amounted to roughly 6.5% of Microsoft's market cap.

Microsoft's market cap is valued at almost $2.3 trillion, and it is paying only 3% for Activision.

Microsoft is paying Activision investors in cash instead of using its increased stock value. Despite the large amount, Microsoft can afford it due to its substantial cash reserves. As of Sept. 30, the company had $130 billion in cash and equivalents, with 85% of that in short-term investments.

Microsoft paid a 45% premium for Activision, which was its closing price on Friday. Despite this, Microsoft investors remained unconcerned, as the stock only fell by 2.4% on Tuesday, in line with other tech stocks on a down day for the market.

Microsoft's acquisition of Activision Blizzard for $69 billion reflects the excitement around gaming and the company's potential to expand its presence beyond the Xbox and its existing subscription service called Game Pass.

Microsoft's acquisition of ATVI for $68.7B is the largest in its history and offers strategic value, particularly in the consumer technology sector where Microsoft has a smaller product portfolio. Piper Sandler analysts recommend buying shares and note that gaming and advertising represent an incremental $1 trillion share gain opportunity for Microsoft in the long term.

Microsoft is capitalizing on a regulatory climate that has primarily spared the company while targeting Big Tech competitors such as Google, Facebook, and Amazon, who have faced scrutiny from elected officials over their advertising, commerce, and mobile data practices.

Microsoft has been making large acquisitions in unrelated markets, while other mega-cap companies have mostly limited themselves to small purchases.

According to Dan Ives, an analyst at Wedbush Securities, Microsoft (MSFT) is not subject to the same level of regulatory scrutiny as other tech giants such as Amazon, Apple, Facebook, and Google. This allows Nadella to make a major bet on consumer while others are constrained by regulatory issues and cannot pursue assets like this.

The size of this deal is likely to spark controversy in Washington, D.C., and will challenge Microsoft's reputation.

On Tuesday, Activision's stock closed down 26%, reaching $82.31, which is 13% below the agreed acquisition price. This indicates that investors are not confident that the merger will be successful.

Microsoft, Activision Blizzard, and Broadcom are among the top picks today.