Activision Blizzard's New Deal

Activision Blizzard (NASDAQ: ATVI  ) is striking out on its own. The company reached a purchase agreement with Vivendi (NASDAQOTH: VIVHY  )  to transfer enough shares so that it will become an independent company, one that's majority-owned by public investors rather than a single corporation.

This is a big deal for Activision -- and for existing shareholders. So let's dig right in to the details.

What
Activision will spend $5.83 billion, financed mostly with new debt but also with $1.2 billion of cash, to acquire 429 million shares from Vivendi. An investor group that's led by Activision's management will separately kick in $2.34 billion to buy 172 million shares from Vivendi. After the deal closes, Vivendi's interest in Activision will plummet from more than 60% to just 12%. The investor group that includes Activision's CEO and co-chairman will own about 24.9% of the company.

So what?
Vivendi's reduced stake means that Activision has removed some major risk factors from its operation. Among the negatives to being controlled by Vivendi, Activision listed the following in its latest 10-K:

"The interests of Vivendi and its subsidiaries may conflict with the interests of our other shareholders." "Vivendi has the ability to nominate a majority of our board of directors and determine the outcome of certain matters submitted to our stockholders, such as the approval of significant transactions and the declaration of dividends on our common stock." "Vivendi's ownership may affect the liquidity in the market for our common stock." "Our common stock may trade at prices that do not reflect a 'control premium' to the same extent as do the stocks of similarly situated companies that do not have a stockholder with an ownership interest as large as Vivendi's ownership interest."

Today's deal takes care of all these issues, giving public shareholders the full focus and attention of Activision's management. In fact, the agreement aligns management's interests even more with the company's investors, as CEO Bobby Kotick and co-chair Brian Kelly are putting up $100 million of their own money in the purchase.

Now what?
Activision's new capital structure will have a positive effect on its reported earnings per share this year. The company expects EPS to now grow between 18% and 29% in 2013. But notwithstanding the deal, Activision sees revenue clocking in at $4.31 billion, or a bit below the $5 billion it logged last year. And investors won't have to wait long for the deal to be finalized. It's expected to close by the end of this September.

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