Vivendi to Take Controlling Stake in Activision, Rival Electronic Arts

French entertainment company Vivendi SA is purchasing a controlling stake in Activision for $9.8 billion, forming a combination that will rival Electronic Arts for the position of world-leading independent video game manufacturer. Vivendi will pay $27.50/share in addition to $1.7 billion in cash to acquire 52% of Activision, valuing the combined company at $18.9 billion. The new entity, to be called Activision Blizzard, will then repurchase $4 billion worth of its shares for $27.50 each, boosting Vivendi's stake to an estimated 68%. The purchase price represents a 24% premium over Activision's Friday close. The entity will merge Activision -- which excels at making games for consoles like Xbox 360 and Playstation -- with Vivendi's Blizzard Entertainment, which dominates the online game market. Blizzard produces World of Warcraft, which, with 9.3 million users, has become what the NY Times calls a "worldwide phenomenon."

"We looked every which way to figure out how to participate in what Blizzard had created," said Activision CEO Robert A. Kotick. "We couldn’t find a way to duplicate it, but we could acquire the expertise." Vivendi CEO Jean-Bernard Levy said, "Gaming is now a core business for Vivendi. The match of the two companies is amazingly powerful, and it will immediately create a new leader in videogaming world-wide." Activision is a hot property: its Guitar Hero III sold 1.3 million copies in the first week after its release and it had three of the eight best-selling games in the U.S. through October. Activision's sales hit $1.5 billion in 2007, a 74% increase over 2003, well ahead of the 25% increase over the period seen by Electronic Arts. Activision's and Vivendi's combined revenue for 2007 is estimated at $3.8 billion; Electronic Arts is forecasting 2007 revenue at $3.7 billion. Wedbush Morgan Securities analyst Michael Pachter: "There is a competitor now to Electronic Arts... There are now two guys that are dominant."

Sources: Press release, Wall Street Journal, MarketWatch, Bloomberg, c|net News.com, New York Times
Commentary: Activision Boosts Q3, Full Year Outlook After Strong Thanksgiving • Citigroup, Credit Suisse Get Bullish On Video Games • Best and Worst Performers of the Last Two Days
Stocks to watch: ATVI, VIV [Paris]. Competitors: ERTS, SNE, TTWO. ETFs: EMG, EMM, IJK
Earnings call transcript: Activision F2Q08

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