Market Insight

Activision Blizzard splits with Vivendi

July 25, 2013

Chenyu Cui Chenyu Cui Senior Research Analyst – Games, IHS Markit
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Activision Blizzard is to acquire approximately 429m shares from Vivendi to become independent of its majority shareholder in a deal made up of $5.83bn in cash and 'certain tax attributes'. ASAC, an investment group that includes CEO Bobby Kotick, Chairman Brian Kelly, Davis Advisors, Leonard Green Associates, Tencent and an unnamed 'global institutional investor' will purchase an additional 172m shares for $2.34bn. ASAC will own approximately 24.9 per cent of shares while Vivendi will still hold on to approximately 12 per cent. At the end of the transaction Activision Blizzard will be an independent company.

Vivendi had reportedly been looking for a buyer for ATVI since July of last year. The lack of a buyer for the company exposes the difficulty in finding investment demand for game companies so closely tied to the traditional games business. Many investors are more focused on higher growth areas including mobile despite the fact that the traditional games business is at the beginning of a new console cycle. Vivendi itself wanted to divest of its games business saying that it did not complement their existing pay television and telecoms products.

What impact this new financial structure will have on ATVI products is not clear. The company never divulged how deeply Vivendi was involved in the day- to-day decision-making. Independence may allow the company to make more bold moves in the gaming market. ATVI has shown with Skylanders that it is willing to take risks. It may be more willing to do so with this new structure.

When Vivendi was looking for third-party buyers for its share of Activision Blizzard in July last year, Tencent was one of its major targets because of the company's big cash flows and existing partnership for Call of Duty OL. However, after just acquiring a 40 per cent stake in Epic Games in July 2012, Tencent was seeking more opportunities in mobile game markets through WeChat and companies exposed heavily to traditional client PC games seems to be unattractive. Now as one of the institutional investors sharing the stake of 24.9 per cent, Tencent is still able to strengthen the relationship with Activision Blizzard but with relatively little investment. Call of Duty OL is in closed beta testing phase recently requiring a close co-operation between the two companies on the localisation process and analysis of users' feedback. This purchase is likely to enhance success of upcoming official launch of the title.

Blizzard's traditional partner in China is NetEase which provides service of World of Warcraft, Starcraft and new Hearth Stone. The partnership between Activision Blizzard and Tencent might threaten NetEase in the future.

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