Vivendi Not As Greedy As Anticipated

A couple of weeks ago speculation was rampant that Vivendi was about to raid the coffers of Activision/Blizzard to the tune of $US 5 billion.  I wrote a little piece documenting some of Vivendi's financial difficulties and linking the possible raid to some of Blizzard's cash shop ideas for World of Warcraft.  Since then, the speculation has firmed up and the WoW keeps making announcements and moves.

First from the Vivendi side. The predictions of Vivendi's actions were looking at doomsday scenarios based on the French company's financial difficulties.  Up until 9 July Vivendi could not force Activision/Blizzard to pay out a special dividend without the approval of a special three-person panel who were not willing to grant that permission.  VentureBeat reported on 8 July:

"'Vivendi cannot compel a dividend without the consent of two of the three independent directors,' Wedbush analyst Michael Pachter wrote in a note to investors in May. 'We believe such assent has not been forthcoming. In our view, Vivendi has approached Activision about levering up its balance sheet and paying a large dividend, and Activision has likely balked at the idea. We believe that Activision management prefers not to be financially constrained, and paying out a large dividend after incurring a high debt balance would limit Activision’s ability to grow its business going forward.'

"One possible scenario would have Vivendi forcing Activision to borrow around $5 billion dollars. The publisher already has around $4 billion on hand. Vivendi would then, in this scenario, force Activision to pay out a one-time dividend of $8.5 billion, which would leave the game maker with $500 million to make games and inject $5.2 billion of cash directly into Vivendi’s balance sheet."

Instead of grabbing over $5 billion, the latest speculation is that Vivendi is only looking for $2 billion.  That would require a special dividend of over $3 billion in total, which is under Activision/Blizzard's reported $4.3 billion cash on hand.  But that will still force the U.S. game maker to borrow money due to U.S. tax laws.

"'We believe Activision’s management prefers to use cash to buy back stock but it may not have a choice,' Sterne Agee Arvind Bhatia says. 'Activision had $4.3B in cash on its balance sheet, including $2.7B held overseas and $1.6B in the U.S. Since repatriating cash held overseas would trigger tax obligations, we believe ATVI will likely take on debt in the amount of at least $1.5B.'"

With this type of financial hit on the near term horizon plus a reported desire to buy back shares to escape Vivendi, the motivation to maximize profits on World of Warcraft becomes clear.  However, Blizzard hasn't quite perfected the art of the cash shop.  Recently players began to rage over $15 helms.  On Legendary Episode 135 on Gamebreaker.tv, the hosts even reported that players are getting kicked out of pick-up raid groups for wearing one of the expensive hats.  The players have not reached $70 monocle rage yet, but Blizzard needs to learn the cash shop game a lot faster than I think they planned on or anyone expected if they want to withstand the capital pressure Vivendi is putting on Activision/Blizzard's corporate wallet.