Activision shareholders are expected to approve a merger with Vivendi Games that will allow the deal to close within days and create a new top dog in the fast-growing video gaming world. Say hello to Activision Blizzard. EA just got pwned.
The terms of the deal, first unveiled in December, valued the new Activision Blizzard at $18.9 billion. Current gaming king Electronic Arts' market capitalization after Monday's market close stood at $14.1 billion, according to Yahoo Finance.
More important for Wall Street, while EA has been reporting losses, Activision Blizzard, of which Vivendi will own a slight majority, has promised to be the most profitable gaming firm and grow its bottom line at a healthy pace. "I don't care about who is No. 1 and 2," Hudson Square Research analyst Daniel Ernst said. "Earnings growth is what counts for investors."
Activision Blizzard is positioned to ensure that as it brings together some of the hottest gaming franchises, such as Vivendi's massively multiplayer online juggernaut "World of Warcraft" and Activision's "Guitar Hero." Analysts say it also allows the respected Activision sales and marketing machine to tap into Asia, where Vivendi already has a presence, and potentially take the new partner's product, like the Bourne franchise, to new heights.
Unlike early expectations from some investors, the deal has not led to a deal wave in the industry. But analysts say the new 800-pound gorilla's reach across the world and various gaming platforms will have a major effect on the way every gaming company thinks about their business.
"What it does is create a (first) truly global gaming company with reach in the U.S., Europe and Asia," including in the fast-emerging Chinese market, said Edward Williams, an analyst with BMO Capital Markets. "It also creates a company that drives revenue from multiple streams, including the massively (multiplayer) online game category that is seeing the biggest growth."
Meanwhile, EA -- known among other things for its "Madden NFL" series -- has been trying to strike its own deal. While it wouldn't significantly build its MMO and global reach, a takeover of Take-Two Interactive could add the hit franchise "Grand Theft Auto" to EA's arsenal.
While various analysts like shares of EA and the new Activision Blizzard for their scale and potential bottom-line improvements, Ernst is most bullish on a foreign player: Nintendo. He said the Wii console is starting to really be "a significant driver" of earnings this year, and Nintendo also should continue to benefit from a sales shift away from the Sony's PlayStation and Microsoft's Xbox.
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