Microsoft Corp is buying "Call of Duty" maker Activision Blizzard for $68.7 billion in the biggest gaming industry deal in history as global technology giants stake their claims to a virtual future.

The all-cash deal announced by Microsoft on Tuesday, its biggest-ever acquisition, will bolster its firepower in the booming videogaming market where it takes on leaders Tencent and Sony.

It also represents the American multinational's bet on the "metaverse", virtual online worlds where people can work, play and socialize, as many of its biggest competitors are already doing.

"Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms," Microsoft Chief Executive Satya Nadella said.

Microsoft's offer of $95 per share represents a premium of 45% to Activision's Friday close. Its shares were up 27% at $83.35 in early trading, still a steep discount to the offer price, reflecting concerns the deal could get stuck in regulators' crosshairs.

Microsoft has so far avoided the type of scrutiny faced by Google and Facebook but this deal, which would make it the world's third largest gaming company, will put them on lawmakers' radars said Andre Barlow of the law firm Doyle, Barlow & Mazard PLLC.

"Microsoft is already big in gaming," he said.

The tech major's shares were down 0.7% in early trading.

The deal comes at a time of weakness for Activision, maker of games such as "Overwatch" and "Candy Crush". Before the deal was announced, its shares had slumped more than 37% since reaching a record high last year, hit by allegations of sexual harassment of employees and misconduct by several top managers.

The company is still addressing those allegations and said on Monday it had fired or pushed out more than three dozen employees and disciplined another 40 since July.

CEO Bobby Kotick, who said Microsoft reached out to him for a possible buyout, would continue to be the CEO of Activision following the deal.

In a conference call with analysts, Microsoft boss Nadella did not directly refer to the scandal but talked about the importance of culture in the company.

"It's critical for Activision Blizzard to drive forward on its renewed cultural commitments," he said, adding "the success of this acquisition will depend on it."

'METAVERSE ARMS RACE'

The global gaming market was valued at $173.70 billion in 2021, and is expected to grow to $314.40 billion by 2027, according to research firm Mordor Intelligence.

Microsoft can already claim a significant beachhead in the sector as one of the big three console makers. It has been making investments including buying "Minecraft" maker Mojang Studios and Zenimax in multi-billion dollar deals in recent years.

It has also launched a popular cloud gaming service, which has more than 25 million subscribers.

Executives talked up Activision's 400 million monthly active users as one major attraction to the deal and how vital these communities could play in Microsoft's various metaverse plays.

Activision's library of games could give Microsoft's Xbox gaming platform an edge over Sony's Playstation, which has for years enjoyed a more steady stream of exclusive games.

"The likes of Netflix have already said they'd like to foray into gaming themselves, but Microsoft has come out swinging with today’s rather generous offer, which would make Microsoft the third largest gaming company in the world," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

Tech companies from Microsoft to Nvidia have placed big bets on the so-called metaverse, with the buzz around it intensifying late last year after Facebook renamed itself as Meta Platforms to reflect its focus on its virtual reality business.

"This is a significant deal for the consumer side of the business and more importantly, Microsoft acquiring Activision really starts the metaverse arms race," David Wagner, Equity Analyst and Portfolio Manager at Aptus Capital Advisors said.

"We believe the deal will get done," he said, but cautioned: "This will get a lot of looks from a regulatory standpoint."

(Additional reporting by Ankur Banerjee, Eva Mathews and Uday Sampath in Bengaluru, Kenneth Li in New York, Diane Bartz in Washington, Supantha Mukherjee in Stockholm; Writing by Pravin Char; Editing by Anil D'Silva and Carmel Crimmins)