Vivendi to transform games unit with $19bn deal for Activision

Vivendi is to take control of Activision of the US through an alliance that would create the world's biggest video games publisher and bring the hit titles World of Warcraft, Guitar Hero and Call of Duty under one corporate roof.

The French group, whose activities span recorded music, pay-TV and mobile telephony, said yesterday that it planned to merge its Vivendi Games unit with Activision, a Nasdaq-listed pioneer of computer games. It would then seek to raise its stake in Activision to a maximum of about 68 per cent.

The complicated proposal underlines how Vivendi's once lossmaking games division has been transformed into a desirable business by the success of World of Warcraft, an online fantasy game from Vivendi's California-based Blizzard Entertainment.

Activision has also been doing well. Last week, it raised forecasts for the period up to Christmas following the success of the latest instalments of Guitar Hero, a rock riff simulator, and Call of Duty, a war game.

If approved by Activision shareholders, the first stage of the alliance would involve the injection of Vivendi Games into Activision in return for shares. Activision, whose management backs the merger, would simultaneously issue $1.7bn of new shares to Vivendi at $27.50 each. Vivendi would emerge with about 52 per cent of the enlarged business.

If that transaction closes, Activision Blizzard would buy back and cancel some stock in a $27.50 per share tender, partly funded by the $1.7bn received from Vivendi (and by the issue of up to $700m of additional shares to the French group).

Activision shares closed at $22.15 on Friday, giving the group a market capitalisation of $6.4bn. Vivendi and Activision valued the transaction at $18.9bn.

Jean-Bernard Lévy, Vivendi chief executive, told the Financial Times Vivendi did not bid for the whole company because it wanted it to remain listed.

Robert Kotick, Activision chairman and chief executive, would become chief executive of Activision Blizzard.

The enlarged company would aim for pro forma operating income of $1.1bn and earnings per share of more than $1.20 in 2009. The deal would create $50m-$100m in savings, Mr Lévy said.

Goldman Sachs advised Vivendi; Activision was advised by Allen & Company.