Vivendi compromises to get shot of Activision

July 26, 2013

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Vivendi has compromised to get shot of Activision Blizzard. The media and telecoms conglomerate is selling the bulk of its 61.1 percent stake in the U.S. video games maker for $8.2 billion. This caps a hectic week for the French group, after a network-sharing deal at home, and the 4.2 billion euro sale of Maroc Telecom. Investors will be pleased that Vivendi’s reinvention is finally taking shape. But in neither disposal has Vivendi realised the premium that usually comes with ceding control.

Vivendi is selling most of its stake in Activision Blizzard, the producer of “Call of Duty” and “World of Warcraft”, in a complex deal with the company itself and top management. As no one was willing to buy the whole company, it looks like Vivendi had to brandish some threats over possible forced cash payouts to reach a compromise with its unit’s board.

Using borrowed money and cash, the U.S.-listed firm will buy back and cancel shares worth $5.8 billion. An investor group led by Activision Blizzard Chief Executive Bobby Kotick and Co-Chairman Brian Kelly will pay Vivendi $2.34 billion for a 24.9 percent stake. Vivendi will hang on to 12 percent.

At $13.60 a share, the purchase comes 10 percent below Activision’s previous closing price. That’s not impressive. A fairer comparison may be with the February share price, before Activision hinted that huge buybacks or dividends could be coming. Even then, this is still a skinny 13 percent premium.

The other side seems to get away with a great deal. Net income next year could be about $929 million, assuming interest costs, adjusting for tax benefits, amount to 5 percent of the new debt. The investor group’s share of earnings will be $231 million. Set against their purchase price of $2.34 billion, that gives a price-earnings ratio of about 10.1 times. That’s a long way below Activision’s PE ratio, which averaged 14.4 times over the last five years.

The longer-term picture is better. A $2.6 billion outlay has, all-in, returned more than $10 billion to Vivendi. But for the moment, strategy – re-shaping the group – seems to be trumping financial concerns – achieving the best possible price for assets.

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