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Vivendi vs ActiBlizz Series Continues. Latest episode: The Cash Grab. Any Effect on Titan?


 

 
The Facts

Update: Looks like in the end, Activision Blizzard managed to avoid the special dividend Vivendi had planned to issue and bought itself back from the holding giant[PDF], becoming an independent company. They did not avoid debt however, as this self-purchase was founded with $1.2 billion cash on hand and $4.6 billion debt proceeds. As mentioned below though, they still have at least $3 billion cash in their coffers, that they chose not to use for this transaction. So in the end, most of the below conclusions do stand, from a financial point of view at least, although being a "free" company is definitely a big win for the gaming giant and something that's well worth the huge investment. 
 
Vivendi, a humongous holding company (which basically means it produces nothing, just owns and manages shares of other companies), has reached the conclusion that having $17.3 billion in debt is not a very good thing. They're in danger of having their credit rating downgraded, their stock keeps going down and are exposed to other nasty stuff that can result from such a high debt. So they're doing their best to reduce it. They call it slimming down and focusing on their media portfolio. As a result, any company that does not fit this title is being traded off. 
 
They're already mostly done with selling their 53% stake in Maroco Telecom for $5.5 billion and it's rumored that the next step is doing the same with the shares of SFR, a telecom giant just as big, with the difference that Vivendi fully owns it. As we found out about a year ago, Activision Blizzard was also put on sale. Unfortunately for them, and apparently for the gaming giant as well, nobody was interested enough to pay the required price. So they're switching to plan B, namely siphoning the funds from ActiBlizz through a special dividend.
 
When the pair went under Vivendi's hold, they had a deal in place preventing the parent company of doing such special cash requests without the approval of the other board members. The deal has expired just this month, and since Vivendi holds 63% of the controlling shares, they now have the power to do such a cash grab. And they definitely are not shy about it, with things apparently being in motion already.
 
Word is they've settled on a $3 billion dividend, which would give Vivendi $2 billion in cash, considering they hold about 2/3 of the stock. Activision Blizzard has that and more saved up, $4.6 billion to be more precise. The problem is that only about $1.6 billion of that sum is inside the US, the rest being neatly deposited in various off-shore accounts. This means that they can't use those money unless they want them introduced into the US system, which would mean certain tax obligations that they've been trying to avoid. So to pay a $3 billion dividend, they will probably opt to borrow at least $1.4 billion, hence giving the company something that it has done its best to avoid until now: debt.
 
 
How Will it Affect the Company and Implicitly Project Titan?
I think there are two main factors to consider here.
 
First of all, things are not as dire as we might think, as I see it anyway. All companies pay such dividends at some point in time and with the amount of cash saved up, you could say that ActiBlizz is in a decent spot to do such a thing. They might've hoped to be able to use these savings + debt to buy themselves back from under Vivendi, but I guess that and other plans will have to be put on hold.
 
Also, as it's obvious from comparing the numbers, the debt is in a way "fake", because all in all they have more money saved up than what they need to pay to their share-holders, just that it's distributed in other regions than US.
 
Also worth considering is that this was reserve money. Cash saved up for such special events, like paying dividends, buying something or extremely "rainy days". Losing a chunk of this shouldn't affect day-today operations or mid-term plans, not right now at least.
 
And this leads me to the second factor. I think the question "how will this affect Titan?" is at the wrong verb time. It should be "How has this affected Titan?" since I'm sure this move from Vivendi was not a surprise for the ActiBlizz management. They knew when the deal that was protecting them would expire, they knew of Vivendi's intent to get rid of its debt for at least a few years, so they had plenty of time to prepare. Sure, they probably also tried to avoid it (mainly through a buy-back), but at the same time if they had any "adjustments" to implement they probably already put them in place.
 
I'm definitely not saying that Titan's "reset" was Blizzard getting the memo from above, but if something like that would happen, it probably already did.
 
 
The Bottom Line
I think that if things continue to go well for the gaming giant, this move from Vivendi will have no impact whatsoever on any of its current and future projects, including Titan. The main change is that the company is now a bit more exposed. A streak of weaker than expected launches or a problem in the market could place them in trouble faster than before. So investing in new franchises should still be on top of their priority list, especially since they need to reflect confidence and potential after taking this hit (and dealing with a shrinking WoW), just that they'll need to be a bit more careful to not screw up.
 
And looking just at Blizzard, they might be a bit more exposed than Activision just because of the way they "cook" their games. If things go bad in the future, financially speaking, Blizzard will have to make some drastic changes to its process, with the expected result of streamlining it and eliminating the so called "iterations" that throw back the planned release dates by years. :) 






13 Comments

Right, right, right. Nice write up. 

 

I'm picking up what your laying down. It would be interesting to know how much, if any, Avti's foresight into this matter affected Blizzard's decision to reset Titan. Maybe they where like, "If we don't do make the changes now, we will lose our chance!" I say that 50% jokingly. 

 

The whole situation sucks. I understand that a lot of business wouldn't be around if there was not "parent" companies to buy them, but I also know that a lot of those company's would be different, sometimes better (sometimes worse) businesses if they could focus on their products without keeping the larger corporation happy. I follow the auto industry quite closely as well and see things like this happen. Drives me batty. 

 

You are right in your "don't freak" tone. This will effect how both companies (Activision and Blizzard) operate from financial standpoint, or I should say it has effected. But the production process shouldn't change much. If anything, more empisis will be put on Titan as it has become ever more important to Blizzard's financial future. But with WoW still having 7 - 8 million monthly subs, an (overpriced) cash shop, and their other very successful title making them some money, they have little to worry about ATM

I never understood these things, one company owns another, first makes money, second one takes it... Sopranos very much?

To be honest, when is money is tight, it tends to usually mean that any game being put out has passed numerous quality tests, and would...if anything...ensure that the "new Titan" might be that much better. ActiBlizz won't (or can't?) pay for anything mediocore. 

Activision in $8.2 Billion Deal to Buy Back Stake From Vivendi

 

Activision Blizzard, the world’s biggest video game publisher, has a reached an $8.2 billion deal to separate from Vivendi and become an independent company.

 

http://dealbook.nyti...-vivendi/?_r=4

Activision in $8.2 Billion Deal to Buy Back Stake From Vivendi

 

Activision Blizzard, the world’s biggest video game publisher, has a reached an $8.2 billion deal to separate from Vivendi and become an independent company.

 

http://dealbook.nyti...-vivendi/?_r=4

 

Holy Squirrels!

boom boom boom, would post an article but tbh waiting for mynsc

I have to wonder if Blizzard will now cut ties with Netease and WoW, Diablo, Starcraft will be handled by Tencent, which owns 25% of it 

what does this big change mean for us gamers (and maybe future projects from blizz)?

 

anyway, im happy that actiblizz is now independent.

what does this big change mean for us gamers (and maybe future projects from blizz)?

 

anyway, im happy that actiblizz is now independent.

 

Probably not alot.

I am more interested in what Tencent owning part of the company means for the Blizzard business in China :S (also its not 25%, just part of it sorry)

What a great way to start a Friday! Good news, happy to hear it.

I am more interested in what Tencent owning part of the company means for the Blizzard business in China :S (also its not 25%, just part of it sorry)

 

It can only be a good thing, no matter how much exactly it owns.

 

 

As to what it means for us, the players, not much I think. The company is basically safe from cash grabs like the one Vivendi probably intended and it's now publicly owned, which means no single entity has the power to make decisions. Decisions that usually involve around dividends, board members and so on and have virtually nothing to do with the games themselves.

From the special Conference Call:

 

  • Tencent does not have a board seat, they're a passive shareholder. And according to ActiBlizz's CFO I believe, their investment is thanks to their "enthusiasm" for CoD in China.
  • Only Destiny was mentioned when it came to upcoming projects.
  • Not having a controlling share-holder gives them better flexibility and potential for investing and also gives public share-holder better returns.