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Activision (ATVI) to Buy King Digital of Candy Crush Fame for $5.9B

Video game major Activision Blizzard, Inc . ATVI is buying Candy Crush maker King Digital Entertainment plcKING for $5.9 billion. The deal will help Activision Blizzard to expand its presence in the lucrative mobile gaming business.

As per Activision, the mobile gaming industry is expected to generate $36 million in revenues by 2015, and from 2015 to 2019, it is expected to register cumulative growth of 50%. Activision, the maker of Call of Duty and War of Worlds has, however, had limited presence in the fast-growing mobile games arena.

However, with people opting to play games on their smartphones and tablets, video game companies are seeing this as a lucrative opportunity to boost revenues. As per Activision, the deal would make it the one of the biggest global leader in interactive entertainment industry.

Another key aspect of the deal is that Activision Blizzard, which has a strong male-gamer-dominated base, will now have a sizeable female user base. King Digital's iconic games Candy Crush and Candy Crush Soda are hugely popular with women. With over 500 million users in 196 countries, Activision Blizzard is now ahead of Twitter, Inc. TWTR as well as Instagram and is inching closer to Alphabet Inc's GOOGL YouTube and Facebook, Inc FB .

Activision will be paying $18 per share, a 20% premium to King Digital's closing share price on Oct 30. The deal will be funded through $3.6 billion offshore cash and $2.3 billion in debt.

Though the boards of both companies have unanimously approved the deal, it is awaiting shareholders and regulatory approval. Though the purchase price of $18 falls below the IPO price of $22.50, shareholders are likely to approve the deal as a positive sentiment is palpable given a 15% jump in pre-market trading . The transaction is expected to close by spring 2016.

King Digital's management including its CEO will be retained and the Dublin-based company will continue to function as an independent unit.

The deal makes sense for King Digital as well. The company, which went public last year, has been struggling to increase its revenues. It has failed to repeat the success of Candy Crush and Candy Crush Soda in other games, leading to concerns about future growth. In the second quarter, the company's adjusted revenues decreased 17.5% year over year to $490 million while gross bookings were down 13% from the year-ago period. King Digital is slated to report third quarter results tomorrow after markets close.

Activision declared its third quarter 2015 results along with the acquisition announcement. The company posted adjusted earnings (including stock-based compensation but excluding one-time items) of 18 cents, which comfortably beat the Zacks Consensus Estimate but decreased over 18% year over year. Adjusted revenues (excluding the net effect from deferral of net revenues) were $1.04 billion, also surpassing the Zacks Consensus Estimate but declining over 11% year over year.

At present, Activision sports a Zacks Rank #1 (Strong Buy) whereas King Digital is a Zacks Rank #3 (Hold) stock.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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