Search form

Activision, Vivendi Merge into Activision Blizzard

Activision Inc. and Vivendi today announced that they have signed a definitive agreement to combine Vivendi Games -- which includes Blizzard Ent, creators of WORLD OF WARCRAFT -- with Activision, creating the world's largest pure-play online and console game publisher. The new company, Activision Blizzard, is expected to have approximately $3.8 billion in pro forma combined calendar 2007 revenues and the highest operating margins of any major third-party videogame publisher. On closing of the transaction, Activision will be renamed Activision Blizzard and will continue to operate as a public company traded on NASDAQ under the ticker ATVI.

Activision is best known for its top-selling franchises, including GUITAR HERO, CALL OF DUTY and the TONY HAWK series, as well as SPIDER-MAN, X-MEN, SHREK, JAMES BOND and TRANSFORMERS. Blizzard Ent. has projected calendar 2007 revenues of $1.1 billion, operating margins of over 40% and approximately $520 million of operating profit. Blizzard owns the #1 multi-player online role-playing game franchise WORLD OF WARCRAFT, which currently has more than 9.3 million subscribers worldwide. Blizzard's WORLD OF WARCRAFT, WARCRAFT, STARCRAFT and DIABLO games account for four of the top-five best-selling PC game titles of all time. Vivendi Games also owns popular franchises, including CRASH BANDICOOT and SPYRO. Pro forma for calendar 2007, Activision Blizzard expects to generate approximately 70% of its revenues from owned franchises. As a result of the business combination, Activision Blizzard expects to have the most diversified and broadest portfolio of interactive entertainment assets in its industry.

Jean-Bernard Levy, Chairman of the Management Board and CEO of Vivendi, stated, "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."

Said Robert Kotick, Activision's Chairman/CEO, "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."

Kotick continued, "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. 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."

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.

Within five business days after closing the transaction, Activision Blizzard will launch a $4 billion all-cash tender offer to purchase up to 146.5 million Activision Blizzard common shares at $27.50 per share. The tender offer will be funded by Activision Blizzard's cash on hand at closing, including the $1.7 billion in cash received from the Vivendi share purchase. In addition, Vivendi has agreed to acquire from Activision Blizzard additional newly issued shares for up to an additional $700 million of Activision common stock at $27.50 per share, the proceeds of which would also be used to fund the tender offer. Any remaining funds required to complete the tender offer will be borrowed by Activision Blizzard from Vivendi or third-party lenders. If the tender offer is fully subscribed, Vivendi will own an approximate 68% ownership stake in Activision Blizzard on a fully diluted basis.

The transaction is expected to be immediately accretive in its first year post-closing for Activision's stockholders and slightly accretive for Vivendi's stockholders. Activision Blizzard is targeting pro forma operating income of $1.1 billion and pro forma earnings per share (EPS) in excess of $1.20 in calendar year 2009. The transaction is expected to be at least $0.20 accretive to Activision stockholders in calendar year 2009.

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. Rene Penisson, currently a member of the Management Board of Vivendi and Chairman of Vivendi Games, will serve as Chairman of Activision Blizzard. Brian Kelly, currently Co-Chairman of Activision, will serve as Co-Chairman of Activision Blizzard. The three independent directors will be Richard Sarnoff, Robert J. Corti and Robert Morgado. Other Activision Blizzard directors will be Robert Kotick (President/CEO of Activision Blizzard), Bruce Hack (Vice-Chairman/ CCO of Activision Blizzard), Jean-Bernard Levy (Chairman of the Management Board and CEO of Vivendi), Doug Morris (Chairman/CEO of the Universal Music Group), Philippe Capron (Member of the Management Board and CFO of Vivendi), and Frederic Crepin (SVP, Head of Legal, Vivendi).

Following the completion of the transaction, Robert Kotick will be President/CEO of Activision Blizzard. Bruce Hack, current CEO of Vivendi Games, will serve as Vice-Chairman/Chief Corporate Officer of Activision Blizzard, accountable for leading the merger integration and the finance, human resources and legal functions. Mike Griffith will serve as President/CEO of Activision Publishing, which after closing will include the Sierra Ent., Sierra Online and Vivendi Games Mobile divisions in addition to the Activision business. Mike Morhaime will continue to serve as President/CEO of Blizzard Ent. Thomas Tippl, currently CFO of Activision, will be appointed CFO of Activision Blizzard and Jean-Francois Grollemund, currently CFO of Vivendi Games, will be appointed Chief Accounting Officer of Activision Blizzard.

The transaction has been approved by the boards of directors of Vivendi, Vivendi Games and Activision. The transaction is subject to the approval of Activision's stockholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration of applicable waiting periods and receipt of applicable approvals under the Hart-Scott-Rodino Antitrust Improvements Act and European Union merger control regulations. Pending regulatory and stockholder approval, the companies expect the transaction to be completed in the first half of calendar year 2008.

Rick DeMott's picture

___________
Rick DeMott
Animation World Network
Director of Content
Creator of Rick's Flicks Picks

randomness