Guitar Hero meets Warcraft in Vivendi-Activision deal

By Jessica Hall and Scott Hillis

PHILADELPHIA/SAN FRANCISCO (Reuters) - French telecom and media group Vivendi said on Sunday it will merge its video games unit with Activision Inc in a $9.85 billion deal that combines the hit "Guitar Hero" and "World of Warcraft" franchises under one roof.

The complex deal will give Vivendi a 52 percent stake in a new industry giant called Activision Blizzard with annual revenue of $3.8 billion, rivaling that of Electronic Arts Inc, the world's biggest independent game publisher.

Activision, which is riding high on the success of games such as "Guitar Hero," "Call of Duty" and "Tony Hawk," has lacked an offering in the online role-playing area, which is dominated by "World of Warcraft" from Vivendi's Blizzard Entertainment.

"This turns Activision into an EA-like company. It turns them far more global, puts them in China, where they haven't been, and in (online games), where they haven't been," said Michael Pachter, an analyst with Wedbush Morgan Securities.

The deal values Activision at $27.50 per share, or a 24 percent premium to its Friday closing price.

Vivendi will contribute its Vivendi Games business, which it valued at $8.12 billion, and provide $1.73 billion in cash for the 52 percent stake in Activision Blizzard. These terms value the combined company at $18.9 billion.

Activision Blizzard will operate as a publicly traded company. The news surprised some given Activision's surging sales and profit.

"This company didn't look like it was positioning itself for a sale," Mike Hickey, an analyst with Janco Partners, said of Activision. "They've had a phenomenal year and everyone likes to go out on top, so maybe that's what they're doing."