Activision and Vivendi Games have sent shockwaves through the industry by announcing they are set to merge into a new company called Activision Blizzard. The deal, valued at $18.9 billion, could see EA dethroned as the world’s largest third party videogame publisher.


The new publishing behemoth, “the world's largest pure-play online and console game publisher,” is expected to have approximately $3.8 billion in pro forma combined calendar 2007 revenues. The company's operating magins could see Activision Blizzard oust Electronic Arts as the largest third party videogame publisher in the business, just days after EA CEO John Riccitiello said that the videogames industry is no longer ripe for mergers.

The merger will create a company whose portfolio consists of some of the largest videogame franchises in the industry, including Blizzard’s World of Warcraft (pictured), Starcraft and Diablo, Activision’s Call of Duty, Guitar Hero and Tony Hawk, and Vivendi’s Crash Bandicoot and Spyro. It will also give Activision direct access to the library of Vivendi's Universal Music Group, the world's largest record label, "which will benefit Guitar Hero and further extend our sizeable leadership position in music-based games."

Under the terms of the agreement, Vivendi Games will be merged with a wholly owned subsidiary of Activision. In the merger, shares of Vivendi Games will be converted into 295.3 million new shares of Activision common stock. Based on the transaction price of $27.50 per share of Activision common stock, this implies a value of approximately $8.1 billion for Vivendi Games.

Concurrently with the merger, Vivendi will purchase 62.9 million newly issued shares of Activision common stock at a price of $27.50 per share - a premium of 31% to Activision's average closing price over the past 20 trading days - for a total of $1.7 billion in cash. As a result of these transactions, Vivendi will own an approximate 52% ownership stake in Activision Blizzard on a fully diluted basis. A subsequent tender offer, if fully subscribed, will see Vivendi own a stake of approximately 68% in Activision Blizzard on a fully diluted basis.

Activision Blizzard is targeting pro forma operating income of $1.1 billion and pro forma earnings per share in excess of $1.20 in calendar year 2009.

"This alliance is a major strategic step for Vivendi and is another illustration of our drive to extend our presence in the entertainment sector,” said Vivendi CEO Jean-Bernard Levy.

“By combining Vivendi's games business with Activision, we are creating a worldwide leader in a high-growth industry. We are excited about the opportunities for Activision Blizzard as a broader entertainment software platform.”

Robert Kotick, Activision's chairman and CEO said, "This is an outstanding transaction for Activision and our stockholders, as well as a pivotal event in the continuing transformation of the interactive entertainment industry. By combining leaders in mass-market entertainment and subscription-based online games, Activision Blizzard will be the only publisher with leading market positions across all categories of the rapidly growing interactive entertainment software industry and reach the broadest possible audiences.

“By joining forces with Vivendi Games, we will become the immediate leader in the highly profitable online games business and gain a large footprint in the rapidly growing Asian markets, including China and Korea, while maintaining our leading operating performance across North America and Europe,” Kotick added.

Bruce Hack, current CEO of Vivendi Games, will be accountable for leading the merger integration and the finance, human resources and legal functions. Following the completion of the merger, expected to be in the first half of calendar year 2008, Activision Blizzard's board of directors will be comprised of eleven members: six directors designated by Vivendi, two Activision management directors and three independent directors who currently serve on Activision's board of directors. Hack will serve as vice-chairman and chief corporate officer of Activision Blizzard, Kotick will serve as president and CEO, while Rene Penisson, currently a member of the Vivendi board and chairman of Vivendi Games, will serve as chairman of the new publisher.



News-Source: Next-Gen