Company finalizes $20 billion Activision merger

Just four years after trying to get out of the biz, Vivendi closed a merger of its videogame unit with Activision on Thursday to create the world’s biggest pure play game publisher, valued at more than $20 billion.

Its closest competitor, Electronic Arts, is worth $14.4 billion.

After trading its entire vidgame operation and an extra $1.7 billion in cash, Vivendi owns 52% of the new company, called Activision Blizzard.

Though Vivendi has a diverse videogame operation, the deal is predicated almost entirely on Activision’s desire to get its hands on “World of Warcraft,” the ultra-popular and immensely profitable online vidgame created by Vivendi Games subsid Blizzard Entertainment.

Activision CEO Bobby Kotick, who is retaining that role at the combined company, said he initially approached Vivendi about acquiring Blizzard before devising the merger deal, which was announced in December.

“I love (Blizzard’s) business but realized it would be impossible to compete with them,” said Kotick.

“World of Warcraft,” which cost more than $100 million to produce when launched in late 2004, has more than 10.7 million subscribers and is believed to be the most profitable videogame in history, with margins over 50%.

Completion of the deal marks a remarkable turnaround in Vivendi’s attitude toward videogames. In early 2004, it tried and failed to sell Vivendi Games after spinning off most of its other entertainment assets into NBC Universal.

Now, due almost entirely to the success of “Warcraft,” the French conglom is significantly expanding its presence.

“Vivendi immediately recognized the benefit of creating the No. 1 games company, and when (CEO) Jean-Bernard Levy thought about this, it was always with the intention of being in a controlling situation,” said Vivendi Games CEO Bruce Hack, who will be vice chairman and chief corporate officer of the new company.

Combined company will have three of the biggest franchises in the videogame world, with “Warcraft” and Activision’s “Guitar Hero” and “Call of Duty.”

“Those are the three core assets that are paying the bills in the new company,” Hack said.

Kotick said key personnel at the development studios working on all those franchises have been signed to new long-term contracts.

Blizzard will continue to operate independently, with CEO Mike Morhaime reporting directly to Kotick. In addition to growing “World of Warcraft” globally, Blizzard is also working on new installments of its “Diablo” and “Starcraft” franchises.

“Everyone made it clear that unless Blizzard was supportive of this deal, nobody wanted to do it,” said Morhaime. “I wanted to make sure we would continue to enjoy a great deal of creative autonomy, and once I felt comfortable their goals were consistent with that, we were very excited.”

Outside Blizzard, however, Vivendi Games will likely be significantly downsized. Most of the leadership of the new company will come from Activision, which means many of Vivendi’s corporate staff will likely lose their jobs.

In addition, Activision has been reviewing all of Vivendi’s console games in development under its Sierra label. Kotick said those that don’t meet his company’s standards for the potential to produce high margins and sequels will be cut.

“We already have a very good view into which products are going to have the prospects for profits that we look for,” noted Kotick.

Hack, who previously led the integration of NBC with Universal and will play the same role for Activision Blizzard, said game properties and development studios that aren’t brought into Activision Blizzard will either be divested or shut down. He added that management is hoping to make all such decisions within 30 days.

On Thursday, its first day of trading, Activision Blizzard stock closed up 2% at $31.77.

As part of the merger agreement, company will offer to buy back 146.5 million shares at $27.50. Because the stock price has risen higher due to the companies’ strong performance in the past seven months, no stockholders are expected to take up the offer, which will leave Activision Blizzard with some $3 billion in cash.

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