Microsoft Corp. agreed to buy Activision Blizzard Inc. in an all-cash deal valued at about $75 billion, using its largest acquisition by far to grab a videogame heavyweight that has been roiled by claims of workplace misconduct.

The deal, if completed, would sharply expand Microsoft’s already sizable videogame operation, adding a stable of popular game franchises including Call of Duty, World of Warcraft and Candy Crush to Microsoft’s Xbox console business and its own games like Minecraft and Doom. Microsoft said the transaction…

Microsoft Corp.
agreed to buy
Activision Blizzard Inc.
in an all-cash deal valued at about $75 billion, using its largest acquisition by far to grab a videogame heavyweight that has been roiled by claims of workplace misconduct.

The deal, if completed, would sharply expand Microsoft’s already sizable videogame operation, adding a stable of popular game franchises including Call of Duty, World of Warcraft and Candy Crush to Microsoft’s Xbox console business and its own games like Minecraft and Doom. Microsoft said the transaction would make it the world’s third-largest gaming company by revenue, behind China’s
Tencent Holdings Ltd.
and Japan’s
Sony Group Corp.

The deal is valued at $68.7 billion after adjusting for Activision’s net cash, Microsoft said.

An acquisition also would mark the latest and biggest move by Microsoft Chief Executive Officer

Satya Nadella
to reshape Microsoft through a string of deals that have helped make the world’s second-highest-valued company a powerhouse in business computing and a rising giant in videogames.

The deal entails significant complications, too. Shares in Activision had been down nearly 30% since California regulators filed a lawsuit against the company in July alleging sexual harassment and gender pay disparity among the company’s roughly 10,000 employees.

Activision shares surged nearly 38% in premarket trading Tuesday after The Wall Street Journal reported it was close to a deal with Microsoft, whose shares fell 1.6%.

Bobby Kotick,
Activision’s longtime CEO, is expected to leave after the deal closes, according to people familiar with those plans. Microsoft had said in its announcement Tuesday that Mr. Kotick “will continue to serve as CEO of Activision Blizzard,” and that after the deal closes “the Activision Blizzard business will report to Microsoft gaming chief

Phil Spencer.
” But the companies have agreed that he will depart once the deal closes, the people said.

In an interview Tuesday, Mr. Kotick didn’t specifically address his status after the deal closes, but said he has told Microsoft he will “always be available to ensure that we are going to have the very best integration.”


Activision Blizzard has been under intense pressure from shareholders, business partners, and others over workplace misconduct allegations.

Photo: Bing Guan/Bloomberg News

Since the California lawsuit, Activision, Mr. Kotick, and its board of directors have been under intense pressure from shareholders, business partners, and others over the misconduct allegations. Following a Wall Street Journal investigative article in November about Activision’s handling of workplace issues, nearly a fifth of Activision’s employees signed a petition calling for Mr. Kotick to resign, and Mr. Spencer told Microsoft employees the company was evaluating its relationship with Activision.

Microsoft approached Activision about a deal in November, after the Journal’s article, people familiar with the matter said. A Microsoft spokesman declined to comment on the timing of the acquisition and whether Mr. Kotick would be leaving the company after the deal closes. An Activision spokesperson didn’t immediately respond to a request for comment.

Activision has announced a number of changes in recent months that Mr. Kotick has said are intended to make it a welcoming and inclusive workplace, including a zero-tolerance harassment policy and an end to mandatory arbitration for harassment and discrimination claims.

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The Wall Street Journal Interactive Edition

On Monday, the Journal reported that Activision had pushed out or disciplined more than 80 employees since July as part of efforts to address harassment and other misconduct allegations.

“We see the progress that they’re making that was pretty fundamental to us deciding to go forward here,” Mr. Spencer said about Activision’s plans to address workplace issues.

The deal follows a boom in the videogame business during the pandemic. It also comes as Microsoft and other technology giants are jockeying for position amid major changes in the sector, including a shift toward cloud-based gaming and the rise of a virtual world known as the metaverse where people can play, work and shop across different platforms using digital avatars.

Mr. Nadella’s Microsoft has shown an enormous appetite for acquisitions—but Activision is more than twice the size of its previous biggest deal. In that earlier purchase, Microsoft paid more than $26 billion for professional social network LinkedIn Corp. in 2016, pushing Microsoft into social media.

Last year, Microsoft made what was then its second largest acquisition, shelling out $16 billion for artificial intelligence company
Nuance Communications Inc.
to help accelerate growth in the healthcare market.

In making these giant acquisitions, Microsoft has been successful largely because it keeps its hands off new entities and provides support in additional funding and technology like Microsoft’s Azure cloud, said analysts. In July, Microsoft said that LinkedIn for the first time surpassed $10 billion in annual revenue.

Microsoft has stumbled in some of its deal efforts, noticeable in the defeat in 2020 of its attempt at buying parts of short-video app TikTok from Chinese parent company ByteDance Ltd. At the time, TikTok faced a threatened ban in the U.S. by then-President
Donald Trump

over national-security concerns.

Microsoft also engaged in unsuccessful talks to buy social networking company
Pinterest
and chat startup Discord Inc.

After those deals fizzled, Microsoft decided to double down on investments into its gaming ambitions, one person familiar with Microsoft’s strategy said.

Since taking over as CEO in 2014, Mr. Nadella has spent more than $10 billion to buy more than a dozen game studios, including the companies responsible for the Doom franchise and Minecraft.

In October, at the Journal’s WSJ Tech Live conference, Mr. Spencer, the Microsoft gaming chief, said the company wasn’t slowing down on its gaming acquisition spree. “We’re always out there looking for people who we think would be a good match and teams that would be a good match with our strategy, so we’re definitely not done,” Mr. Spencer said.

Microsoft’s gaming strategy increasingly is focused on growing its subscription business, called Game Pass, which for a monthly fee lets gamers have access to a catalog of games. In the past, Mr. Nadella has likened the Game Pass strategy to the “
Netflix
for games.” Microsoft announced early last year that Game Pass had 18 million subscribers. With the Activision announcement on Tuesday, Microsoft said it now has 25 million subscribers.

Microsoft on Tuesday said the deal would bolster its Game Pass portfolio, with plans to bring Activision games into the subscription service. With Activision, Microsoft said it would have 30 internal game development studies. The transaction has been approved by the boards of both companies, Microsoft said, and is expected to close by July 2023.

Buying Activision would increase Microsoft’s videogame revenue by about half. Analysts estimate that Activision’s sales in 2021 totaled $8.7 billion, according to FactSet, while Microsoft reported $15.4 billion in gaming revenue for the fiscal year through June, accounting for about 9% of its total.

Activision’s stock had been rising, amid the videogame industry’s pandemic surge, until the July lawsuit by the California Department of Fair Employment and Housing, which alleged gender pay disparity and sexual harassment at the company. Activision has disputed the department’s allegations

The company also has been under investigation by the Securities and Exchange Commission, the Journal reported in September, with a specific focus on Mr. Kotick, who was separately subpoenaed along with other senior executives. Activision has said it is cooperating with the SEC.

Activision also said in September it had agreed to settle a two-year-long probe of sexual harassment claims by the Equal Employment Opportunity Commission for $18 million. The settlement is pending a judge’s approval.

The Journal’s investigative article in November, which cited interviews and internal documents, showed that Mr. Kotick didn’t inform the board of sexual misconduct allegations that he was aware of, including rape, against managers across the company. It also detailed misconduct allegations against Mr. Kotick, including when an assistant complained in 2006 that he had threatened in a voice mail to have her killed.

Activision has said the Journal’s reporting gave a misleading view of the company and its CEO. Mr. Kotick has said he was transparent with his board, which issued a statement supporting him. An Activision spokeswoman has said that he wouldn’t have been informed of every report of misconduct and that Mr. Kotick regrets the alleged incident with his assistant.

The Journal’s article Monday reported that Activision had collected 700 reports of employee concern over misconduct and other issues since July. A summary of the company’s personnel issues was prepared before the December holidays but Mr. Kotick held it back, believing it would make the company’s workplace problems seem bigger than is already known, the Journal reported, citing people familiar with the situation.

An Activision spokeswoman disputed the 700 figure and said employee comments included statements on social media and ranges from benign workplace concerns to “a small number” of potentially serious assertions, which the company investigated. She said “the assertion regarding Mr. Kotick is untrue.”

Microsoft itself has faced pressure from shareholders over its handling of sexual harassment allegations among its staff. Last week, the company said it plans to be more transparent on the subject, and that its board of directors would review its sexual harassment and gender discrimination policies and unveil a summary of the results of past investigations into how the company handled allegations against company executives, including co-founder

Bill Gates.

The Journal, citing people familiar with the matter, last year said Microsoft board members pursued an investigation in 2019 into Mr. Gates’s prior romantic relationship with a female employee. Mr. Gates stepped down from the board in 2020. In the Journal article, a spokeswoman for Mr. Gates said the affair had ended amicably close to 20 years earlier, and that his decision to leave the board wasn’t related to any investigation.

Write to Cara Lombardo at cara.lombardo@wsj.com, Kirsten Grind at kirsten.grind@wsj.com and Aaron Tilley at aaron.tilley@wsj.com