ctivision and Vivendi announced over the weekend that they will be combining forces and merge, creating Activision Blizzard. This new company, Activision Blizzard, is expected to have approximately $3.8 billion in pro forma combined calendar 2007 revenues and become the third party with the highest operating margin. When the transaction is finalized, Activision will be renamed Activision Blizzard and will continue to operate as a public company trading under ATVI in NASDAQ. Activision Blizzard expects to generate approximately 70% of its revenues from owned franchises.
On the game front, this new merger will be a force to be reckoned with,
with Activision having Guitar Hero IV, Call of Duty 5, James Bond, a new Bizarre Creations racing title, Tony Hawk, Marvel, and DreamWorks titles in the pipeline. Vivendi Games brings four seperate divisions - Blizzard Entertainment, Sierra Entertainment, Sierra Online, and Vivendi Games Mobile - with World Of Warcraft, StarCraft II, Diablo, Crash Bandicoot, Ghostbusters, Brutal Legend and Prototype in their arsenal.
What does this actually mean to the gamer? Not a whole lot. Vivendi basically took a majority stake in Activision - meaning Activision is still a public company, as is Blizzard. Activision Blizzard logos won't be plastered on any upcoming Tony Hawk titles or the next iteration of Guitar Hero. This does allow all companies to share financial, marketing and resources, and help attract key industry developers.
In the merger, shares of Vivendi Games will be converted into 295.3 million new shares of Activision common stock at $27.50 per share - which will be an implied value of $8.1 billion for Vivendi Games. Concurrently, Vivendi will purchase 62.9 million newly issued shares of Activision common stock at a price of $27.50 per share - which is a premium of 31% to Activision's average closing price over the past 20 trading days - which will come to $1.7 billion in cash. As a result, Vivendi will own an approximate 52% ownership stake in Activision Blizzard. Five business days after closing the transaction, Activision Blizzard will purchase up to 146.5 million Activision Blizzard common shares at $27.50 per
share coming to a $4 billion all-cash tender offer. In addition, Vivendi has will also acquire 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.
When the transaction is completed , Activision's Robert Kotick will be
President and Chief Executive Officer of Activision Blizzard. Bruce Hack, current Chief Executive Officer of Vivendi Games, will serve as Vice-Chairman and Chief Corporate Officer of Activision Blizzard. Mike Griffith will serve as President and Chief Executive Officer of Activision Publishing, which will include the Sierra Entertainment, Sierra Online and Vivendi Games Mobile divisions in addition to the Activision business. Six members of the board of directors will be appointed by Vivendi, and Activision manangement directors and three independent directors who currently serve Activision will govern this new publishing powerhouse.
Mike Morhaime will continue to serve as president and chief executive officer of Blizzard Entertainment. Thomas Tippl, currently chief financial officer of Activision, will be appointed chief financial officer of Activision Blizzard and Jean-Francois Grollemund, currently chief financial officer of Vivendi Games, will be appointed chief accounting officer of Activision Blizzard.
Jean-Bernard Levy, chairman of the management board and chief executive officer 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."
Rene Penisson, member of the management board of Vivendi and current Chairman of Vivendi Games, added: "We are very confident that by combining forces, Activision Blizzard will set the highest standards in quality, reputation and profitability, and will bring together the best creative teams in the industry. The combination of this unique product portfolio with highly professional employees gives us great confidence in the growth prospects for Activision Blizzard."
Said Robert Kotick, Activision's chairman and chief executive officer: "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."
Mike Morhaime, president and chief executive officer of Blizzard, added: "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."