Wednesday, July 10, 2013

Vivendi Looking For Phat Loot

Activision Blizzard is at the top of the gaming world.  With games like World of Warcraft and the Call of Duty series, one would think that gaming giant doesn't have a financial care in the world.  Sure, WoW has seen the number of subscribers dipping down to 8.3 million after a 1.3 million subscriber loss in the first quarter.  But Activision Blizzard's next gen MMORPG, code-named Titan, was delayed until at least 2016 indicating that the gaming giant figured that WoW still had a few good year's left in it.  And with the Financial Times indicating that Activision Blizzard has $US 4.6 billion in the bank, one would think Titan is not needed right away.

But while Activision Blizzard is in good shape, the same is not true for Vivendi.  Vivendi is important because it owns 61% of Activsion Blizzard's stock.  That same Financial Times article indicates the French telecom and media company is not in great shape and is rated BBB with a negative outlook by Standard and Poors.  The BBB rating is the second lowest credit rating.  According to the article Vivendi is trying to restructure its business by selling off its telecommunications businesses and build around its content companies like Universal Music, the home of Justin Bieber and Rihanna.

But things aren't going so well, as the company had a negative balance sheet of $US 16.8 billion at the end of Q1.  The company is also apparently having some difficulties selling off its telecommunications assets.  On Wedesday Vivendi sold 750 million euros in corporate bonds for the purpose of refinancing bonds maturing in 2014.

Some are speculating that Vivendi is about to use some boardroom maneuvering to get some of Activision Blizzard's money.  Joystiq reported on 8 July:
"Financially strapped conglomerate Vivendi wasn't able to sell off its controlling interest in Activision Blizzard, but it's looking to get money out of the $4.4 billion cash and asset-flush publisher through other means. The Financial Times (via Reuters) reports Vivendi will try some boardroom maneuvers to obtain a massive payout.

"Coincidentally, the play Vivendi is reportedly trying to pull off is nearly identical to a theory published by Wedbush Securities analyst Michael Pachter in May. And it goes a little something like this: July 9 (tomorrow) is the five-year closing date of the $18 billion Activision and Vivendi merger, which means Vivendi will have the ability to nominate a majority of Activision's board of directors. After that, the board could take out a mega loan, and initiate a dividend (a standard payment given to shareholders).

"'Borrowing of $5 billion would permit a dividend of $8.5 billion. As the holder of 61 percent of Activision's common stock at March 31, 2013, we estimate Vivendi would receive approximately $5.2 billion in cash, easing its mounting debt concerns,' wrote Pachter."

The Reuters report explained why Vivendi could not force such borrowing earlier:
"Current rules [that expired 9 June] require Vivendi to secure the support of Activision's independent directors ahead of any dividend payment that takes the division's net debt above $400 million.

"But as these rules expire on Tuesday, Vivendi would be able to gear up Activision's balance sheet and force the payout of a special dividend without the approval of independent directors."

In the Financial Times article, another possibility emerged.  Some analysts believe that Vivendi could use the thread of a leveraged dividend as a threat that would lead Activision Blizzard to respond with a tender offer for part of Vivendi's stake in the company at above-market prices.  However, don't expect Vivendi to give up controlling interest in the game's company as Reuters reports that Vivendi plans to group Brazillian telecom unit GVT, Universal Music Group, Activision Blizzard and pay-TV provider Canal Plus into a new Vivendi media group, with efforts to sell of GVT to occur later.

News of Vivendi's grab into the Activision Blizzard cookie jar puts the recent disclosure of plans to introduce an in-game cash shop to World of Warcraft in a new light.  The move isn't necessarily due to World of Warcraft performing poorly.  Instead, the move to sell convenience items to Asian gamers and pets to Western gamers looks like a move to refill the war chest because Vivendi is not doing well and looks like it has put Activision Blizzard on its raid schedule.


  1. Get in bed with the French. Come out smelling like Paris.

  2. Vivendi's "scheme" is nothing new. This used to be quite common - buying up companies, cashing out their resources and crippling them to failure and bankruptcy - putting thousands of people out of work and costing investors millions of dollars.

    Unfortunately for Vivendi, however, these sorts of activities are now much more strictly regulated by the US government, esp. when involving foreign investors, particularly given the current US domestic economic and unemployment situation.

    Which is pretty much why the Chinese have not managed to buy up every American company and put them out of business yet....