Investors reacted positively Friday morning to news that Activision Blizzard Inc. would buy back $5.8 billion in shares from its French parent company Vivendi and become an independent video game publisher.
Santa Monica-based Activision said it would buy 429 million shares from the Paris-based media conglomerate, at $13.60 a share. The video game company said it will fund the transaction using $1.2 billion in cash and taking on $4.6 billion in debt.
Separately, an investment group led by Activision Chief Executive Bobby Kotick and Co-Chairman Brian Kelly will buy approximately 172 million shares from Vivendi at a cost of $2.34 billion. The managers will contribute a combined $100 million of their own money.
“We expect to emerge from this transaction even stronger than we are today,” Kotick said in a call with the investment community. “An independent company with best-in-class franchise portfolio and the focus and flexibility to drive long-term shareholder value and expand our leadership position.”
Taken together, Vivendi’s stake in Activision Blizzard will be reduced to 12% when the deal closes around September. The management led investor group, ASAC II, will hold an approximate 25% stake.
Vivendi told Reuters that it is divesting certain assets as it focuses on music, television and cinema. It owns the world’s largest music company, Universal Music Group, and a pay-TV company, Canal Plus. Proceeds from the transaction will allow the conglomerate to pay down its debt, the company said.
Earlier this week, Vivendi said it is in talks to sell its controlling stake in Maroc Telecom for about $5.6 billion.
Vivendi acquired its controlling stake in Activision in 2008, in a deal intended to create a more powerful rival to Electronic Arts. Its investment brought together Activision, maker of such popular console games as “Call of Duty,” with Vivendi’s Blizzard Entertainment unit, creator of the online game “World of Warcraft.”
“Five years ago, we made one of the best decisions in the company’s history when we joined forces with Blizzard Entertainment,” Kotick said, “By bringing Activision and Blizzard together, we united in one company some of the best creative and business talent in the industry, and some of the most important entertainment franchises in the world.”
Kotick said Activision Blizzard has achieved continued success with such best-selling titles as “Skylanders Giants” and “Call of Duty: Black Ops II." He said the transaction will make the game company independent once again, leave the company to reward its shareholders and gain more flexibility in the future.
Activision Blizzard will emerge from the deal with more than $3 billion of cash on its balance sheets.
After the deal closes, Vivendi’s representatives on the board -- including its chief financial officer -- are expected to step down, the Wall Street Journal reported.
Kotick told Wall Street analysts that a nominating committee would identify the independent directors, and that he and Kelly would serve as board representatives for the ASAC investment group.
Separately, the company release preliminary second-quarter results, in which it reported revenue of $1.05 billion and earnings per share of 28 cents.
In the hours before the stock market opened, Activision Blizzard shares rose nearly $2 above Thursday’s closing price of $15.18, a gain of more than 13%.