Activision notes Q2 decline in WoW subs, independence is a “win-win-win” says analyst

By Stephany Nunneley
26 July 2013 13:40 GMT

Activision Blizzard became an independent company last night, after it bought back the majority of its shares held by former parent company Vivendi which now, only holds a 12% stake. This is, according to Robert W. Baird & Co analyst Colin Sebastian, a “win-win-win” for all parties involved – despite a decrease in WoW subs.

The split

Speaking in an industry email, Sebastian said this was the best outcome for Activision shareholders, as it leaves the company independent and provides significant EPS accretion for investors.

“We believe this is a more favorable outcome for Activision shareholders than the alternative “special dividend” or sale of Vivendi’s shares to an alternative strategic buyer,” he said. ‘As part of the deal announcement, Activision also pre-announced better-than-expected Q2 revenue.”

Activision announced last night it will buy back 429 million of its shares from Vivendi for $5.83 billion ($13.60/share). Activision Blizzard will fund the acquisition with a combination of $1.2 billion of cash and approximately $4.6 billion of debt.

The firm used an independent company to work the deal with Vivendi.

An investment group led by CEO Bobby Kotick and co-chairman Brian Kelly will purchase 172 million shares from Vivendi for $2.34 billion in cash ($13.60/share), and included in the investor group are Chinese Internet company Tencent, Davis Advisors, Leonard Green, and a “large global institutional investor.”

CEO Bobby Kotick noted on the call to investors today that Tencent doesn’t have a seat on the board nor does it have the right to nominate someone to it – something he also noted back during the firm’s Q1 FY13 investor call.

He reiterated the Chinese firm was a “passive investor” and its contribution was the result of the “enthusiasm” it has regarding the Call of Duty Online deal in China.

Q2 fiscal year 2013 preliminary results

Following the completion of the transaction, Activision will be an independent company with the majority of its shares, or 63%, owned by the public. The firm discussed this in a financial briefing to investors this morning.

The firm is expected to announce its Q2 FY13 results next week, August 1. The firm expects revenue of $1.5 billion for the quarter and for the full year expects 4.3 billion in revenue.

Noted in Sebastian’s email was another decline in World of Warcraft subs, which was also briefly mentioned on the investor call.

World of Warcraft ended Q2 with 7.7 million subscribers, numbers which stood at 8.3 million back in May when the firm reported its Q1 financials. The 1.3 million decline was at the time attributed to the Chinese market’s decrease in casual engagement.

Activision didn’t state the reason for the decline on the call this morning, so we expect to hear more why the MMO lost 600,000 players when the financial results are published next week.

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