U.S. Court Stalls Activision-Vivendi Deal - Analyst Blog
September 20 2013 - 1:00PM
Zacks
Activision Blizzard
Inc.(ATVI) recently received a setback when a U.S. Court
put a hold on Vivendi SA’s plan to sell its stake in the company.
Vivendi had planned to sell 85.0% of its stake in Activision to the
latter for $8.2 billion.
The lawsuit was filed by one of the
shareholders of Activision against both the parties, based on which
the Delaware Chancery court issued a preliminary injunction to stop
the transaction for the time being.
Vivendi had expressed its intent to
sell its stake in Activision in Jul 2013, which would enable it to
effectively split its Media and Telecom assets. The divestment
would bring down Vivendi’s stake in Activision to 12.0% while the
other investor group would control 24.9%.
As per the terms of the agreement,
Activision was supposed to buy the stake from Vivendi in two
separate transactions. Activision was supposed to first purchase
429 million shares from Vivendi for $5.83 billion. A separate
transaction led by a group including chief executive Bobby Kotick
and co-chairman Brian Kelly was supposed to buy another 172 million
shares worth $2.34 billion from Vivendi.
Activision’s decision to accept
Vivendi’s proposal indicates that it is trying to increase its
controlling stake so that it can take decisions more freely.
Vivendi wanted to have access to the $4.3 billion in cash that is
reflected in the balance sheet of Activision by way of dividend or
share sale. But as Activision wanted to have controlling stake from
the French company so it agreed to buy back shares from
Vivendi.
Both the parties cannot proceed
with the deal further, unless the court modifies its decision and
the transaction gets the approval of Activision shareholders. We
believe that the court’s decision is a temporary setback for both
the parties. Activision has already said that it remains committed
to the deal and the completion of the deal will boost its stock
price going forward.
Moreover, Activision’s strong
product pipeline positions it well for growth going forward.
However, stiff competition from Electronic Arts
(EA), Take-Two Interactive
Software Inc. (TTWO) and Zynga
Inc. (ZNGA) may pose some challenges.
Activision has a Zacks Rank #1
(Strong Buy).
ACTIVISION BLZD (ATVI): Free Stock Analysis Report
ELECTR ARTS INC (EA): Free Stock Analysis Report
TAKE-TWO INTER (TTWO): Free Stock Analysis Report
ZYNGA INC (ZNGA): Free Stock Analysis Report
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