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Vivendi's deal with Activision values the French media company's own video games division at twice as high as many market estimates, but is unlikely to end speculation over a possible break-up of the conglomerate, analysts say.
Vivendi said it would merge its video games business with US games publisher Activision, and take up to 68 per cent in the combined company.
The deal will create a new industry leader called Activision Blizzard, valued at US$18.9 billion ($24.7 billion) with titles such as World of Warcraft and Guitar Hero.
It put a US$8.1 billion valuation on Vivendi Games.
"This operation highlights a very high valuation for Vivendi Games but should strengthen arguments for a big discount to the group," CM-CIC analysts wrote in a research note. CM-CIC has a current target for Vivendi of €33 ($63) a share.
Vivendi shares closed up 1.02 per cent at 31.71 euros, among the top gainers on France's benchmark CAC-40 index.
Activision shares were up 15.8 per cent in morning trading on Nasdaq at US$25.65, after hitting a high of US$26.72. The Vivendi deal valued Activision at US$27.5 per share.
The deal also boosted shares in rival Ubisoft Entertainment amid speculation Electronic Arts, which will be eclipsed by Vivendi's new Activision Blizzard entity, may respond by seizing control of Ubisoft.
Vivendi's conglomerate-like structure has in the past led to speculation of a possible break up of the company, which also owns Universal Music, the world's biggest record label, and a minority stake in General Electric's NBC Universal.
Analysts said the Activision deal, while strategically a good fit, could further cement the discount placed on the Vivendi group's total value.
Deutsche Bank said in a research note the Vivendi Games valuation implied €2 upside to its target price for Vivendi shares of €35. It had previously given a sum-of-the-parts valuation to Vivendi Games of €2.8 billion.
ABN-Amro, which had valued the games unit at €3.9 billion, said the new valuation would imply €1.4 of upside to its €35.2 target price for Vivendi.
"The €1.5 to €3.5 billion difference [to the consensus value of Vivendi Games] translates to €1.5 to €3.5 per [Vivendi] share," said UBS analysts, noting they had already valued Vivendi's Games division at €5.1 billion.
Vivendi chief executive Jean-Bernard Levy said the deal would be accretive to Activision shareholders and "slightly accretive" to Vivendi's shareholders.
Activision chairman and chief executive Robert Kotick said he expected US$50 million to US$100 million in cost synergies.
The companies have also forecast 2009 earnings per share in excess of US$1.20 on revenue of US$4.3 billion.
"We believe we're at the beginning of a tremendous market opportunity," said Activision CEO Robert Kotick.
Analysts said the combination was also a good fit geographically, with Vivendi strong in Asia where Activision is relatively weak.
"We believe this is a good acquisition as Vivendi increases its exposure [the new entity will become the worldwide leader ahead of Electronic Arts] in a sector where size increases the valuation," Spain's Grupo Santander said.
Santander kept a "buy" rating on Vivendi shares.
Based on latest prices, Vivendi shares have risen around 7 per cent since the start of 2007, outperforming a 1.6 per cent rise in France's benchmark CAC-40 index.
- Reuters
