Activision has finally emerged from the shadow of its larger rival Electronic Arts with its agreement to merge with the games division of France’s Vivendi.

In a masterstroke by Bobby Kotick, chief executive, it has gained a similar geographical reach to EA and a highly profitable subscription revenue stream.

EA and Activision have failed to expand into the market for massively multiplayer online role-playing games, which have enjoyed huge popularity in Asia.

World of Warcraft, created by Vivendi’s Blizzard Entertainment, is the dominant game in the genre worldwide with 9.3m players paying monthly subscriptions to continue to explore the expanding virtual world.

Activision Blizzard is being formed in a complex cash and shares transaction valuing it at $18.9bn. Electronic Arts has a market capitalisation of $17.7bn.

The new company will have $3.8bn in revenues in the 2007 calendar year, while EA is expecting $3.5bn in revenues for its fiscal year ending in March 2008.

Activision Blizzard and EA would be closely matched, but Mr Kotick can finally claim to have achieved the industry leadership he has sought since taking over Activision in 1991.

“When we acquired the company, I always felt the opportunity was to become the number-one company in the category,” he said in a recent interview with the Financial Times. “That aspiration hasn’t changed.”

The price to pay for achieving that is control. While he remains chief executive of the new company, Vivendi will own 52 per cent of the shares and could raise its stake to 68 per cent through a planned share buy-back. Vivendi suggested it would not be a sleeping partner – it will have six directors on the new 11-member board.

“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,” said Jean-Bernard Lévy, Vivendi chief executive.

In an interview with the FT, he described Activision as the “perfect fit” for Vivendi’s games unit, complementing its strength in subscription-based gaming. “Its strong points are in the console business,” he said.

In spite of the strong growth posted by Vivendi Games recently, it has sometimes been overlooked because it was significantly smaller than other Vivendi divisions, such as Universal Music, the world’s biggest recorded music group, or Canal Plus, the pay-TV group. The alliance with Activision would put the games business on a more equal footing, Mr Lévy said.

He added the deal would not involve an unacceptable dilution of the strong profitability of the internet-based subscription model that has been so successful for World of Warcraft. “Yes, the margins are huge in the online business, but they are very nice in the console business.”

Mr Lévy said there might be ways of using Universal’s record catalogue as downloads for Guitar Hero, Activision’s hit rock guitar simulation game. “It is not by chance that Doug Morris [the head of Universal] will sit on the board of Activision.”

He said Mark Morhaime, president and chief executive of Blizzard, and other key Blizzard employees had committed to staying for at least five years. The deal is subject to the approval of Activision shareholders and regulatory approval.

Get alerts on Universal Music Group when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article