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Gaming Mergers: Week in Review

game mergersWrapping up a week where tech news was largely dominated by iPhone related hype, and financial news committed to turbulent markets, three of the video game industries top ten publishers (and arguably top 5 depending on the method of ranking) moved ahead with acquisition related activities.  Leading the way, Activision and Vivendi games completed their merger.  Additionally, Electronic Arts made a small forward step in their battle to acquire Take Two Interactive and French publisher, Ubisoft, fortified their film industry foundation with the purchase of a special effects shop.

Completing a process begun in December,  Activision announced on July 8th  its shareholders voted strongly in favor of combining the two gaming companies.  92% of the outstanding shares voted for the deal. 

Under the terms of the deal, which has now been completed, Vivendi Games becomes a wholly owned subsidiary of Activision.  Vivendi received about 295 million new shares of stock and bought an additional 62.9m shares at $27.50 a share in cash   The combination gives Vivendi an approximately 52 percent stake in the outstanding stock of the combined company, now called Activision Blizzard. 

Vivendi has announced they will also begin a tender offer to buy up an additional $4 billion in shares within five days (though Vivendi’s CEO believes the buy up offer won’t succeed given the stock’s current trading range).  Upon the completion of that tender offer, win or lose, the company will then implement a two for one stock split.

The headquarters of Activision Blizzard will remain in Santa Monica.  The company will continue to trade under Activision’s existing Nasdaq symbol, “ATVI.”

"The completion of this transaction marks the beginning of an important new chapter in the history of interactive entertainment," said Bobby Kotick, President and Chief Executive Officer of Activision Blizzard, adding: "By combining leaders in mass-market entertainment and subscription-based online games, Activision Blizzard has leading market positions across all categories of the rapidly growing interactive entertainment software industry. With more than 10.7 million subscribers on World of Warcraft, and with tens of millions of people playing Guitar Hero, Activision Blizzard’s games are transcending the traditional stereotypes and are more popular as a form of entertainment than ever before. We look forward to building upon our brands to create value for our shareholders, customers and consumers."

And speaking of those brands, which include online powerhouse World of Warcraft and console juggernaut “Guitar Hero,” one near term step may involve the creation of an iTunes competitive digital store.

It would be a natural extension of the combined assets of the new partners.  Vivendi is the owner of the largest of the Big Four record labels, Universal Music.  Blizzard is the 800lb gorilla of subscription gaming online.  Activision’s Guitar Hero franchise is proving to be one of the biggest franchises in the gaming industry and a major marketing tool for the music industry.

“When you think about the potential for what we will be able to do together, there have not been many alternatives to iTunes,” Kotick said while visiting with other executives at the Allen & Company Sun Valley conference.  He further added, “If you’re downloading a song to play on your ‘Guitar Hero’, there’s no reason why you can’t download the performance also.  There are all kinds of things you can think about.”

There’s no official plan, but a store and an accelerated acquisition strategy fueled by the added resources of the combined companies could be in the near future.

Moving forward, Activision will also be creating a new label specifically focused on game development for the Wii called “Wee 1st.” Three games have been announced- Little League World Series 2008, Rapala Fishing Frenzy and Dancing with the Stars: Get Your Dance On.  Activision’s Dave Oxford defined the move saying, "The Wii is introducing new audiences to gaming…Clearly, the Wii’s accessible controls are changing how the audience plays games and how we look at game design. This initiative is designed to showcase games that take full advantage of the Wii’s capabilities."

At an estimated value of near $19b, Activision Blizzard has surpassed Electronic Arts as the largest independent game studio.  (That is, unless EA is able to successfully complete its hostile takeover attempt to buy Take Two).

EA’S Take Two Bid is FTC Compliant
On Tuesday, EA announced that it was in substantial compliance with the FTC’s information requests regarding the proposed acquisition of Take Two.

Earlier last month, as detailed more completely in the Metue Deal Diary, the FTC requested additional information to help review whether or not the offer violated any anti-trust laws, particularly issues that might stem from the combination of EA Sports and Take Two’s 2k Sports game divisions.

The FTC announcement comes with a pledge by EA to take no action before August 21st.  That, effectively will extend the deadline for the Tender Offer yet again (it’s currently due to expire July 18th).

Complete coverage of the deal can be found in the Metue Deal Diary here.

The convergence of Hollywood with the game industry is a recurring theme.  Traditional studios like Paramount and Disney have expanded their offerings.  Big names like Spielberg and Bruckheimer have signed development deals.  Movies are being made from games, games being made from movies.

French publisher Ubisoft has made significant strides to align some of its interests with the movie industry.  Mega producer Jerry Bruckheimer (who has a game development deal with Viacom) is at work to  create a feature film from Ubisoft’s Prince of Persia game franchise.   James Cameron, of Titanic and Terminator fame, is at work on a film called Avatar with Ubisoft set to release the game version.   In March, the company bought the rights to use Tom Clancy’s (Hunt for Red October, Patriot Games etc) name .   Now, they’re buying the effect shop behind movies like 300 and Sin City.

Ubisoft announced the acquisition of Canadian effects shop Hybride Technologies earlier this week.

"The future of our industry depends on our ability to create brands that captivate audiences and to extend those brands to other forms of entertainment," said Yves Guillemot, CEO at Ubisoft. "The acquisition of Hybride falls directly into the strategy that has already led us to open a digital creation studio in Montreal and to acquire the Tom Clancy brand for video games and ancillary products. The exceptional quality of the team at Hybride and the expertise of our Ubisoft teams will allow us to create one of the best 3D animation studios in the entertainment industry."

Yannis Mallat, chief executive officer of Ubisoft Montreal further elaborated saying, "Ubisoft and Hybride share the same vision of entertainment convergence and a common passion for innovation and creativity."

Hybride has about 80 employees. In the larger umbrella of the Ubisoft organization, their film expertise should help Ubisoft bring their own games to the movie screen (perhaps echoing the strategy being used by Marvel Entertainment), along with further extending Ubisoft’s 3D animation abilities.

Terms of the deal weren’t disclosed.

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