Activision hopes Blizzard merger can take it online

Activision hopes a planned merger with Vivendi's games units, Blizzard Entertainment and Sierra Entertainment, will help it take its game portfolio online, company executives said Monday.

But the exchange won't be two-way: Blizzard has no plans to put its games on consoles, a market where Activision is strong.

Vivendi aims to acquire a majority stake in Activision with a combination of shares and cash, followed by a share buy-back. The deal will result in the creation of a new company, Activision Blizzard, of which Vivendi would own between 52 percent and 68 percent depending on the level of interest in the share buy-back.

Blizzard is best known for World of Warcraft, a massively multiplayer online role-playing game for PC users. Players pay a monthly subscription for access to the game's servers, where they can interact with thousands of other players in a fantasy world. Other Blizzard titles include Starcraft and Diablo, which can also be played online.

Activision, the publisher of Guitar Hero, Call of Duty and Tony Hawk games, had previously tried to move into the online games business, but "Blizzard operates in categories that are very difficult to compete against," Activision Chairman and CEO Robert Kotick said in a conference call with analysts on Monday.

Once the merger is complete, though, Activision "will leverage Blizzard's knowledge of online gaming and subscription models to generate steady revenues and higher operating profits," he said.

The gaming market was worth around US$28 billion last year, $6 billion of it in online games, with Activision Blizzard businesses representing just a 15 percent share, according to Kotick. "There's tremendous room for growth," he said.

For Blizzard CEO Mike Morhaime the growth opportunities are more of the same: "We intend to grow our subscriber base in markets we are in, and in new markets as broadband penetration grows in territories like Russia, India and other emerging markets."

Despite the rise in popularity of Internet-connected game consoles such as the PlayStation 3 and the Xbox 360, though, "There are no plans to launch any of the Blizzard franchises on consoles," Morhaime said.

Like Activision, Sierra and Blizzard are based in California, far from Vivendi's Paris headquarters.

Vivendi expects to close the two-phase deal in the first half of next year. The first phase -- a payment of $1.7 billion in cash and €8.1 billion in newly issued shares in its gaming division, in return for 52 percent of Activision -- would give it control of the combined entity for relatively little cash. Activision shareholders are being offered $27.50 per share, a premium of 31 percent on the average price over the last 20 days, Vivendi said.

After the second phase of the deal, in which the new Activision Blizzard will offer to buy back its own shares up to a value of $4 billion, Vivendi could be left with as much as 68 percent of the company.