In a move that has shocked gamers worldwide and set the industry scrambling to update their databases, the world's #2 and #3 third-party game publishers, Vivendi Games (including WoW developers Blizzard) and Activision are set to combine in a new force - Activision Blizzard - now the world's largest "pure-play" online and console game publisher.

The deal sees Vivendi contributing their games division (valued at $8.1 billion), plus $1.7 billion in cash for a 52% stake in Activision Blizzard - making the total transaction valued at US$18.9 billion.

Claiming the broadest and most diversified portfolio of interactive entertainment assets in the world, Activision Blizzard are positioned to capitalise on the continued worldwide growth in interactive entertainment. By their powers combined, Activision Blizzard is looking at approximately $3.8 billion in revenue this year alone, as well as the highest operating margins of any major third-party video game publishers - off the bat, aiming to generate around 70% of its revenues from franchises they own outright.

Once the merge is complete, popular Activision titles such as Tony Hawk, Call of Duty, Enemy Territory: QUAKE Wars, Spider-Man and Guitar Hero are now nestled under the same roof as four of the top-five best selling PC games of all time - Blizzard's World of Warcraft, Warcraft, StarCraft and Diablo franchises - as well as Sierra favourites such as Crash Bandicoot, Spyro, and F.E.A.R..


Activision titles: Call of Duty 4, Guitar Hero III, Tony Hawk's Proving Ground
Many of the finer details are still unclear, but Activision Chairman and CEO Robert Kotick will take on the CEO position inthe new company - and the deal is expected to be completed by mid-2008.

Kotick explains:

"This is an outstanding transaction for Activision and our stockholders, as well as a pivotal event in the continuing transformation of the interactive entertainment industry. By combining leaders in mass-market entertainment and subscription-based online games, Activision Blizzard will be the only publisher with leading market positions across all categories of the rapidly growing interactive entertainment software industry and reach the broadest possible audiences. By joining forces with Vivendi Games, we will become the immediate leader in the highly profitable online games business and gain a large footprint in the rapidly growing Asian markets, including China and Korea, while maintaining our leading operating performance across North America and Europe. Activision stockholders will benefit from significantly increased earnings power and the recurring nature and predictability of subscription-based revenues, while also having the opportunity, if they choose, to receive $27.50 per share for a portion of their shares in the post-closing tender offer.

"Vivendi Games provides Activision with unique strategic and financial benefits and will allow us to leverage our franchises into emerging online opportunities as Blizzard has done so successfully. Activision hasbeen very focused on margin expansion, and this transaction will meaningfully increase our overall operating margins as we expand our franchises online and in new geographies. Diversifying our revenue base among subscription-based online, console and PC formats, as well as wireless and casual emerging opportunities, gives us the broadest platform to capitalize on industry growth. With Blizzard's successful franchises, such as World of Warcraft, StarCraft and an exciting pipeline of yet-to-be announced titles, Vivendi Games' and Blizzard's management team will join with Activision's strong and experienced leaders to become an even more powerful force for innovation in online and offline interactive entertainment across a wide range of platforms. This transaction also provides a unique relationship with Universal Music Group – the world's largest music company – which will benefit Guitar Hero and further extend our sizable leadership position in music-based games."

This last point is especially pertinent - Vivendi also own Universal Music, the largest family of record labels in the music industry. Suddenly, the tracklistings for future Guitar Hero games have gotten that little bit bigger.


From Vivendi's side of the deal: World in Conflict, The Legend of Spyro: The Eternal Night, Ghostbusters
Jean-Bernard Lévy, Chairman of the Management Board and Chief Executive Officer of Vivendi adds their perspective:

"This alliance is a major strategic step for Vivendi and is another illustration of our drive to extend our presence in the entertainment sector. By combining Vivendi's games business with Activision, we are creating a worldwide leader in a high-growth industry. We are excited about the opportunities for Activision Blizzard as a broader entertainment software platform. We believe this transaction will create significant value for Activision Blizzard and Vivendi stockholders. In Activision, we have found a partner with a highly complementary business and strong operating team. Bobby Kotick and Brian Kelly are industry pioneers, well known for creating shareholder value. The combined strength of the existing management teams at both companies will set the stage for further profitable growth of Activision Blizzard. We look forward to being an active and supportive majority stockholder in a company that is poised to lead the worldwide interactive entertainment industry in the years ahead."

René Penisson, Member of the Management Board of Vivendi and current Chairman of Vivendi Games, added:

"We are very confident that by combining forces, Activision Blizzard will set the highest standards in quality, reputation and profitability, and will bring together the best creative teams in the industry. The combination of this unique product portfolio with highly professional employees gives us great confidence in the growth prospects for Activision Blizzard."

From Blizzard's side of the deal: Diablo II, World of Warcraft, StarCraft II
The obvious,interesting element of the arrangement is the name, which sees Blizzard elevated even more into the public eye. Mike Morhaime, President and Chief Executive Officer of Blizzard, seems happy with the deal, which will see his company name splashed on some of the biggest games in the industry.

In a comprehensive FAQ posted on their website, Blizzard explain that while somethings have changed, most will really remain the same as they have been "forever". The brand name will remain the same, the games will not be impacted, and the same people will maintain their roles in management.

Morhaime explains:

"Blizzard's industry-leading PC games business, with a track record of nine consecutive bestsellers and a global subscriber base of more than 9.3 million World of Warcraft players, is an exceptional fit for Activision's highly profitable console games business. From our interactions with the Activision team, it is clear we have much in common in terms of our approaches to game development and publishing. Above all, we are looking forward to continue creating great games for Blizzard gamers around the world, and we believe this new partnership will help us to do that even better than before."

At this early stage, it's difficult to predict just how this will affect the industry. Will it mean that we finally see a Blizzard title tackling the console market? Will the as-yet unannounced Guitar Hero IV feature the hits and memories of Universal Music's back-catalogue? Realistically... it probably won't really change much. A bit of a packaging redesign, a new logo, and it's business as usual. Still, the games industry just got that little bit smaller (just a couple of days after EA CEO John Riccitiello stated he thought game company mergers were a thing of the past) - and it'll be interesting to see where Activision Blizzard go next.