Let's file this one under weird business relationships. Vivendi, the majority stake owner of Activision, made a request of the game publisher for a $3 billion dividend. Bobby Kotick, CEO of Activision, and Brian Kelly, co-chairman, decided that this was an unreasonable request and, instead, decided to purchase majority stake back from Vivendi.
$5.83 billion worth of stock will be purchased by Activision itself. $1.2 billion of that will come from on-hand cash reserves, with the remaining being borrowed from Bank of America and JP Morgan Chase. In addition to the stock buyback from Activision, an investment group led by Kotick and Kelly will purchase another $2.34 billion worth of stock, $100 million of which belonging to the two executives. Vivendi will retain the remainder of their stock holdings, amounting to 12%, versus the previous 60%.
Kotick said of the move,
These transactions together represent a tremendous opportunity for Activision Blizzard and all its shareholders, including Vivendi. We should emerge even stronger - an independent company with a best-in-class franchise portfolio and the focus and flexibility to drive long-term shareholder value and expand our leadership position as one of the world's most important entertainment companies...
The transactions announced today will allow us to take advantage of attractive financing markets while still retaining more than $3 billion cash on hand to preserve financial stability. Our successful combination with Blizzard Entertainment five years ago brought together some of the best creative and business talent in the industry and some of the most beloved entertainment franchises in the world, including Call of Duty and World of Warcraft. Since that time, we have generated over $5.4 billion in operating cash flow and returned more than $4 billion of that to shareholders via buybacks and dividends. We are grateful for Vivendi's partnership through this period, and we look forward to their continued support.
This is definitely a huge move for the company, but it could also be a scary decision. Activision is known for milking its franchises until they catch fire, and there is no telling whether Vivendi was involved in this decision at all, or for the better or worse. There is always the possibility that, in the end, their franchises will be even more affected in the future.
Activision's management believes that their earnings per share will increase as much as 30%, indicating that they believe significantly higher profitability without Vivendi. I am going to believe that this indicates they think they can release more unique games that people actually want to play as opposed to minor iterations on existing titles. Activision: prove me right.