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Activision Blizzard breaks off from Vivendi in $8.2 billion deal
Activision Blizzard breaks off from Vivendi in $8.2 billion deal
July 26, 2013 | By Kris Graft




Activision Blizzard will break off from media conglomerate and majority shareholder Vivendi to strike out on its own as an independent – albeit still publicly traded – video game publisher, in a deal worth $8.2 billion, the company announced at midnight EST on Friday.

The company will be buying back shares totaling $5.83 billion, combined with a share purchase totaling $2.34 billion from an independent investor group led by Activision CEO Bobby Kotick and co-chair Brian Kelly. The majority of the company’s shares will be owned by the public after the transaction, which the company expects to finalize in September.

It’s a major move for Activision Blizzard, a company that was forged in a late 2007 deal with then-Blizzard owner Vivendi Games. Now Activision Blizzard is its own entity, and still home to some of the biggest franchises in games, such as Call of Duty, World of Warcraft and Skylanders.

What this all means, according to Kotick, is that his company "should emerge even stronger -- an independent company with a best-in-class franchise portfolio...The transactions announced today will allow us to take advantage of attractive financing markets while still retaining more than $3 billion cash on hand to preserve financial stability."

Kotick will serve as CEO of the company following the transaction, while Kelly will serve as chairman. The two personally contributed a combined $100 million towards the deal. The investment group led by the two executives will own around 25 percent of total company shares. Major Chinese online game company Tencent is also part of the investment group.

Kotick said in a statement that he expects the deal to benefit both Activision Blizzard and its shareholders, including Vivendi, which will retain 12 percent of total shares.

"We are grateful for Vivendi's partnership through this period, and we look forward to their continued support," he said.

Ahead of a special conference call tomorrow morning, Activision Blizzard announced preliminary second quarter revenues of around $1.05 billion, and earnings per share of 28 cents.

For the full year, Activision Blizzard expects to report $4.31 billion in revenue, up from a previous forecast of $4.22 billion. The company expects full year earnings per share of 77 cents, up from an earlier forecast of 73 cents.

Activision Blizzard added that World of Warcraft subscriptions now stand at 7.7 million worldwide.

UPDATE: A conference call Friday morning didn't yield much new information. But Kotick did explain Tencent's role as an investor. "I think their investment just confirms the enthusiasm we have in our partnership for Call of Duty in China," he said, answering an analyst's question. Tencent will not hold a board seat, and Kotick said it will be a "passive investor."


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Comments


George Vazquel
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Now they're going to break out into new areas funding creative original games not part of any franchise. They'll build a model for game development emphasizing creativity and taking risks with new innovative mechanics and storytelling.

I also heard Bobby Kotick will be retiring the Call of Duty franchise. He said, "I no longer support these brutal games glorifying murder. Instead, we're coming out with a new series of games based around themes of charity and goodwill, and they'll all be unique non-franchise titles crafted to instill wonder and encourage critical thought."

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Alex Boccia
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if only ;_;7

William Johnson
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Damn...I read that wrong. I thought it said Blizzard broke free from Activision... I'm disappointed now. I was kind of hoping for an offline Diablo and LAN play Starcraft to come back...guess I still won't be buying Blizzard games. C'est la vie.

Ron Dippold
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Heh, I think Diablo 3 demonstrated the corruption is too deep for that. Bobby owns their souls now.

Chris Clogg
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While I don't think any amount of Blizzard separating from Activision would bring back offline/LAN, I too was tricked by my brain on that headline lol.

Ricardo Hernandez
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Same here. LOL.

Mike Williams
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As a former Blizzard employee, it's not the same anymore. Senior Activision VPs, Directors, and Producers started trickling into the Blizzard walls after Year One, more and more to this day. Take a look at Linkedin -- you'll be surprised.

Kyle Redd
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"The majority of the company’s shares will be owned by the public after the transaction is complete."

Maybe I'm naive, but that is enough for me to believe this will ultimately result in a better company.

Rodolfo Rosini
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You are naive because they are not going independent. The company is being acquired with Tencent money and they will end up being the largest or second largest shareholder but somehow the number of shares they will hold was forgotten in the official press release. This is going indie like Riot Games i.e. as long as they grow.

Adam Bishop
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EA is a publically traded company that is not a subsidiary of anything else. This just puts Activision in the same boat. I doubt it changes much about what kinds of games they put out.

Bruno Mikus
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Big and rich companies have a need to stay big and rich, even more, have a need to become bigger and richer. This move by Activision Blizzard is just a first step in that direction.
More creativity and innovation? It would be nice, but somehow I doubt it will happen.

Nooh Ha
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Activision took on $4.6bn in debt and has now got more debt than it has cash and short term investments - to the tune of $1.4bn in the red. This big and rich company has just got big and poor...

Michael Joseph
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The shares bought back by the company are not debt.

They are assets that can be traded on the exchange.

If I read the article correctly, $2.34 billion worth of the $5.83 billion worth shares bought back were already sold to the investment group involving Kotick and Tencent.

Matt Wyatt
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Activision borrowed money to finance the share repurchase. They didn't have any debt before, so now they have 4B in debt all related to the transaction. Saying that they're poor because of it is silly though. Lots and lots of companies have more debt than cash.

The shares they bought aren't assets though. They become Treasury Stock and the investor presentation makes it seem like they'll be retired.

And the $2.3B the investor group purchased was on top of the Activision buyback, so the entire transaction comes out to over $8B.

Michael Joseph
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"They become Treasury Stock and the investor presentation makes it seem like they'll be retired."

ah. thanks for the correction.

Surely there's a benefit in buying back these shares from the perspective of the common shareholder? I noticed the share price bumped a little over 2 points on the news. Were these Vivendi shares public shares before and counting towards the float?

Nooh Ha
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There will be material earnings accretion for existing shareholders as there will be significantly less shares in circulation.

I was being facetious in suggesting they are now poor. However, games publishers with significant gearing have historically not fared particularly well due to the industry's long term unpredictability and the truth is that servicing and ultimately paying off the $4.6bn in debt gives Activision a considerably increased risk profile.

Matt Wyatt
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Definitely. I think the biggest immediate benefit is the earnings per share. All of those Vivendi shares were increasing the denominator in the calculation.

So, same earnings but more pieces of pie. Now, the pie is divided up less so your EPS looks better.

Frederic Rezeau
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"They are assets that can be traded on the exchange."

Hi Michael,

The shares bought back by Activision cannot be traded on the exchange - with the repurchase the company has effectively reduced its equity - most probably by increasing its debts.

Pallav Nawani
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[Removed my comment]

Terry Matthes
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So Tencent has a near Majority share of Epic Games and now a big chunk of Acti-Blizzard and Riot Games... Interesting.

Adam Bishop
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If Tencent can do buy into that many companies, imagine how much of the games industry could be bought by Fifty Cent . . .

Tyler Shogren
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This is not a golden parachute.

Marvin Papin
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I think they are going to announced World of Warcraft 2 and Starcraft 3, the value of part will be drastically increased and they'll sell their parts to Tencent.

Kotick is not the kind of guy to put all his money into falling structure. He is just preparing himself.

Jacob Johnson
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So...much...money.

Jonathan Murphy
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In 2011 I predicted Activision, EA, Ubisoft and THQ would die in X amount of years. All I did was look at their long term plan, the market, and treatment of employees. 4 years remain. I thought back then I'd only be half right. But with CEOs, game devs, vets, and sub companies leaving/terminated it's not looking good. I also predicted in 2011 Tell Tale, Riot Games, and Valve would take off like rockets. I wonder what the industry will look like in 2017?

Troy Walker
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you're the psychic, you tell us! :)

Jonathan Murphy
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No different than Pachter. Cough. I'm 25% right for now. Please wait to see if I'm 100%. Long term predictions are risky and often wrong. Still. It's fun to use math to predict the future.

Michael Joseph
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If you don't mind elaborating, what about their long term plans strike you as problematic?

And are their problems systemic to large publishers?

There is a prevailing attitude in almost all of the entertainment businesses (with the exception of pro sports and some others where talent and merit really does triumph) that the executives manufacture extreme success. You might be a good writer, but ultimately it takes a big publisher to market your novels and turn you into a household name. You might be a good actor, but only the big wigs can make you into a star. You might be a good singer, but good luck getting anywhere without a major label pushing you into the stratosphere.

And sadly, I think entertainment celebrities (at least the smart ones who aren't completely blinded by their own egos) know this and so in turn, they have little respect for audiences. They know who they owe their success to and it's not the people buying books or purchasing tickets. In games this lack of respect for players shows up as prohibitive DRM policies, DLC mania, whale hunting tactics, and a false sense of entitlement of success with derivative unoriginal products.

It's a Faustian bargain for the artists too because they know that they're being pimped (for lack of a better word) and that they don't have peer level respect from the suits. The same is true with games. It wasn't like this 20 years ago. 20 years ago developers were the big shots and wielded tremendous power and respect. Same can be said about film, novels, and music, etc.. they too had periods where the talent had the power and the respect. Could Aretha Franklin become a star in today's music industry?

That's why for me, the developers I mostly root for today are the independents who march to their own drum. Industry just has a way of corrupting everything it touches and turning people and their work into commodities. AAA games and social games and portable games are full of commodity software. The only saving grace is that unlike other industries, distribution in software is still not monopolized by the suits.

So i guess all this is just a long winded round about way of saying, when it comes to the publishers you mentioned vs companies like Riot and Valve, you can't really expect player focused development and the sort of innovative risk taking from big publishers. It's not in their culture, it's not in their DNA. They just go down the "best of breed" commodity path after others have paved the way. Typically they have to acquire independent studios that make great games.


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