Vivendi and Activision Merge in $18.9 Billion Deal

Vivendi and Activision Merge in $18.9 Billion Deal


Game giants Vivendi and Activision announce a surprise $18.9 billion merger agreement that will combine some of gaming's largest brands, including Guitar Hero and World of Warcraft, under the umbrella of the largest third-party game publisher Activision Blizzard.

Game publisher Activision, Inc. and French telecom and entertainment giant Vivendi have agreed to combine Vivendi Games, Vivendi's interactive entertainment business and home to World of Warcraft developers Blizzard Entertainment, with Activision, creating the world's largest third party game publisher worth $18.9 billion. Activision Blizzard (NASDAQ:ATVI), as the new corporation is called, will earn approximately $3.8 billion in 2007 revenues with the highest operating margins of any of its major competitors.

Vivendi Games, valued at $8.1 billion, will be merged with Activision through the conversion of 295.3 million shares of Vivendi Games stock into priced at Activision common stock. Concurrently, Vivendi will purchase 62.9 million Activision shares for $27.50 per share - a 31 percent premium above Activision's average closing price over the past 20 trading days - for $1.7 billion in cash, granting Vivendi a 52 percent stake in the freshly formed Activision Blizzard.

The Activision Blizzard board of directors will feature six directors designated by Vivendi, two Activision management directors and three independent directors who currently serve on Activision's board of directors. Activision's Chairman and Chief Executive Officer Robert Kotick will be President and Chief Executive Officer of Activision Blizzard. Bruce Hack, the current Chief Executive Officer of Vivendi Games, will serve as Vice-Chairman and Chief Corporate Officer of Activision Blizzard and be responsible for leading the merger integration, finance, human resources and legal functions. Mike Griffith will continue to head Activision Publishing, which will include Sierra Entertainment, Sierra Online and Vivendi Games Mobile divisions in addition to the Activision business after the deal closes.

Activision's advisory team includes Allen & Company LLC and Skadden, Arps, Slate, Meagher & Flom LLP. Goldman Sachs & Co. and Gibson, Dunn & Crutcher LLP are acting as financial and legal consultants on Vivendi's behalf. The transaction is subject to approval by Activision shareholders and government regulators.

For those concerned about the merger's affect on Blizzard Entertainment, the company has taken the liberty to answer questions and provide an Activision FAQ. Activision Blizzard is also providing a fact sheet on its new corporate website which directly states that Activision Blizzard will be a "global leader in dynamic, high margin subscription-based online games business with the opportunity to migrate Activision franchises online."

Jean-Bernard LÚvy, Chairman and Chief Executive Officer of Vivendi said:

This alliance is a major strategic step for Vivendi and is another illustration of our drive to extend our presence in the entertainment sector. 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. We believe this transaction will create significant value for Activision Blizzard and Vivendi stockholders. In Activision, we have found a partner with a highly complementary business and strong operating team. Bobby Kotick and Brian Kelly are industry pioneers, well known for creating shareholder value. The combined strength of the existing management teams at both companies will set the stage for further profitable growth of Activision Blizzard. We look forward to being an active and supportive majority stockholder in a company that is poised to lead the worldwide interactive entertainment industry in the years ahead.

Robert Kotick, Activision's Chairman and Chief Executive Officer, added:

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. Activision stockholders will benefit from significantly increased earnings power and the recurring nature and predictability of subscription-based revenues, while also having the opportunity, if they choose, to receive $27.50 per share for a portion of their shares in the post-closing tender offer.

Vivendi Games provides Activision with unique strategic and financial benefits and will allow us to leverage our franchises into emerging online opportunities as Blizzard has done so successfully. Activision has been very focused on margin expansion, and this transaction will meaningfully increase our overall operating margins as we expand our franchises online and in new geographies. Diversifying our revenue base among subscription-based online, console and PC formats, as well as wireless and casual emerging opportunities, gives us the broadest platform to capitalize on industry growth. With Blizzard's successful franchises, such as World of Warcraft, StarCraft and an exciting pipeline of yet-to-be announced titles, Vivendi Games' and Blizzard's management team will join with Activision's strong and experienced leaders to become an even more powerful force for innovation in online and offline interactive entertainment across a wide range of platforms. This transaction also provides a unique relationship with Universal Music Group - the world's largest music company - which will benefit Guitar Hero and further extend our sizable leadership position in music-based games.

Blizzard head Mike Morhaime said, "Blizzard's industry-leading PC games business, with a track record of nine consecutive bestsellers and a global subscriber base of more than 9.3 million World of Warcraft players, is an exceptional fit for Activision's highly profitable console games business. From our interactions with the Activision team, it is clear we have much in common in terms of our approaches to game development and publishing. Above all, we are looking forward to continue creating great games for Blizzard gamers around the world, and we believe this new partnership will help us to do that even better than before."


And here I was, thinking EA would be the biggest in the industry until they buy up everyone else.

I personally have no problems with the deal, and if it means shared talent between dev groups, then all the better for us gamers.

But what the hell kinda name is Activision Blizzard?

You'd think, given the pool of creative energy on hand, they could come up with a half-decent new name, right?

It sounds like they realized they needed one before announcing it, so they just wrote something on a napkin backstage and whipped it out when they told everyone.

I mentioned this in another thread but this would be a better place for it. These big media companies are averse to any form of creativity at all. Sales are declining for them and they are trying to cash in on the MMORPG craze (see also EA/Mythic). Why try something new when you can just buy something thats already profitable? They are hoping the MMORPG craze continues to expand the way it has been.

I think that this is a mistake, but they will plunge boldly into a market that is quickly becoming saturated (if you don't think it is saturated already). It's already hard to be a success in the MMORPG market, and it's only going to get harder.

If it wasn't for the fact that EA was such a big company nowadays then I would have my reservations about whether this was a good move for the games industry.

However I feel that there needs to be somebody who can stand up to EA's financial muscle and compete on a par with them.

Chris Evans:
If it wasn't for the fact that EA was such a big company nowadays then I would have my reservations about whether this was a good move for the games industry.

However I feel that there needs to be somebody who can stand up to EA's financial muscle and compete on a par with them.

I don't think more money and larger companies help with making games after a certain point. I mean independent gamemakers could use more marketing muscle, but Blizzard? They were doing just fine I think. This is a decision that has less to do with making better games and more to do with making the financial reports look better.

I guess this means the newest playable race in WoW will be ogres that sound like Mike Myers.


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