Shares of video game giant Activision Blizzard (NASDAQ:ATVI) rocketed upwards on Friday after announcing a deal with majority shareholder Vivendi. Since 2007, the French media conglomerate has owned more than 50% of the gaming company. After Friday's deal, Activision will turn into an independent publicly traded company.
Activision Blizzard announced it will purchase 429 million shares for $5.83 billion. This equates to an average price per share of $13.60. An additional 172 million shares will be purchased by ASAC II LP, a new investment group. ASAC II LP is spending $2.34 billion to acquire the shares. Of that total, $100 million is from current Activision CEO Bobby Kotick and Co-Chairman Brian Kelly.
After the transaction is completed, Vivendi will own 12% from its roughly 83 million share count. ASAC II LP will own 24.9% of Activision Blizzard. The investment group includes Koitck and Kelly, Davis Advisors, Leonard Green & Partners, and Tencent. With the new funding, Activision Blizzard will also keep the majority of its cash position.
Shares of Activision Blizzard traded up 15% on Friday for good reason. After the transaction completes, earnings per share will see a non GAAP impact of 23 to 33%. Prior to the transaction, Activision was guiding for full year revenue of $4.25 billion and earnings per share of $0.82. After the transaction, new guidance calls for $1.01 to $1.09 per share.
Analysts were predicting Activision Blizzard would earn $1.02 in fiscal 2014. However, with the much lower share count, that number should be closer to $1.25. Despite the increase in Activision shares Friday, forward price to earnings is less than 15. The company has many exciting games coming out in 2013 or 2014 and several could lead shares even further as the newly independent company appeals to different investors.
Activision Blizzard remains in the midst of an amazing 2013 year. The company stole the show at the Sony Playstation 4 Conference. Activision Blizzard is releasing "Call of Duty: Ghosts" on November 5th, representing a new version of the popular first person shooting series. Popular PC game "Diablo III" comes to consoles soon. "Destiny," from the makers of the "Halo" franchise was announced and should have a positive impact on the company going forward.
Other developments that could surprise analysts and investors could be "Call of Duty Online" and "Titan." Activision Blizzard entered into an agreement with Tencent to bring the popular "Call of Duty" game to China. Interestingly enough, Tencent will now be a minority shareholder of Activision Blizzard through the new investment vehicle. The new investment could lead to future partnerships to bring Activision Blizzard games to China via Tencent.
The other possible catalyst in 2013 could be an announcement of Titan, the new MMORPG coming from Blizzard. Often seen as a replacement to "World of Warcraft," an announcement with details on plot or a release date could power shares of Activision Blizzard higher and keep worries about "World of Warcraft" subscriber losses down.
Activision Blizzard is set to report second-quarter earnings this week. The company has released several early details from that report. Earnings per share will come in at $0.08. Revenue for the quarter was $608 million. The company was the number one independent publisher in North America and Europe. Year to date, Activision has the two best-selling video games with "Skylanders Giants" and "Call of Duty: Black Ops II." Analysts on Yahoo Finance were expecting Activision to post earnings of $0.05 and revenue of $601.1 million.
Shares of Activision Blizzard closed Friday at $17.46, a 15% increase on the day. The shares hit as high as $17.76, breaking new 52-week highs. The company showed off its strengths to new investors with a great second quarter double beat on earnings and revenue. More important, Activision highlighted this new transaction that will make the company independent of Vivendi. With Friday's large increase, I believe shares are due for a pullback. However, the long-term bullish case is there for shares and I will continue to ride alongside Kotick and company with my Activision shares.
Disclosure: I am long ATVI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.