Activision Blizzard Inc.
) 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
Moreover, Activision's strong product pipeline positions it
well for growth going forward. However, stiff competition from
Electronic Arts (
Take-Two Interactive Software Inc. (
Zynga Inc. (
may pose some challenges.
Activision has a Zacks Rank #1 (Strong Buy).
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