A September dinner between Irvine-based Blizzard Entertainment Inc.’s top brass and Activision Inc. Chief Executive Robert Kotick seems to have jump-started the biggest deal yet for the video game industry.
Three months after the dinner, Blizzard’s parent Vivendi SA struck a complex, $19 billion deal to combine its video game business with Santa Monica-based Activision and end up owning about two-thirds of the company.
The deal is set to close by June.
But just weeks before the combination was announced, it appeared the deal was dead in the water, according to filings with the Securities and Exchange Commission.
Talks between France’s Vivendi and Activision, which started in late 2006, had stalled twice before over price and the makeup of the combined company’s management.
Whatever was hashed out during the Sept. 17 meeting between Kotick, Blizzard founder and Chief Executive Mike Morhaime and others from the Irvine online game developer seems to have put the deal back on track.
Just three days before, Kotick called Bruce Hack, chief executive of Vivendi Games, and said it made no sense to continue talks because of differences about corporate governance, operations and price.
Three days after the previously scheduled dinner with Morhaime, Kotick called Jean-Bernard L & #233;vy, chief executive of Vivendi, with a new management and corporate structure proposal for the combined company.
The talks were back on. For the next two months, both sides haggled over what Vivendi would pay for Activision’s shares before a deal was struck on Dec. 1 and announced the next day.
The filing shows that Activision sought a combination with Vivendi’s game unit to get into games played over the Internet.
Blizzard is the leading maker of online games played by millions of people across the world. Last year, it had sales of about $1.2 billion, or 80%, of Vivendi’s video game sales.
The company’s blockbuster game series “World of Warcraft” has more than 10 million subscribers worldwide. Subscribers pay roughly $15 a month to play.
Activision Blizzard is set to rival Redwood City-based Electronic Arts Inc. as the biggest video game company. It will have $4 billion in yearly sales, just ahead of Electronic Arts’ $3.9 billion.
Kotick is set to run the company.
Blizzard is set to operate on its own, a point that came up in negotiations. In August, Vivendi pushed for Blizzard’s independence within the combined company. It insisted that Blizzard’s veteran management, headed by Morhaime, stay put.
Much of the haggling was over what Vivendi would pay for Activision’s shares, according to the filing.
The first formal meeting took place last April and included chief financial officers from both companies as well as a handful of lawyers, consultants and other advisers.
In May, Activision formed a special committee to review the terms of the proposed deal and make recommendations to the full board.
Activision wanted $25.50 a share, which would have made that part of the deal worth about $7.75 billion.
Vivendi wanted to pay $24.75 a share, a 30% premium on Activision’s stock at the time.
In June, negotiations broke down over price.
Vivendi’s L & #233;vy halted talks “due to the meaningful differences between the companies’ proposals and lack of any apparent progress,” the filing showed.
In July, Activision said it would consider Vivendi’s $24.75 price tag in order to resume talks.
The proposal outlined a secondary stock purchase by Vivendi. Activision wanted to up the price of that secondary buy to $3.5 billion from $2.5 billion.
Two days later, Vivendi said the terms of Activision’s proposal were “generally acceptable” and agreed to re-engage in talks, which continued until the breakdown in September.
When talks resumed, Activision pushed for more for its shares.
Vivendi proposed a per share price of $26.50, but Activision asked for more based on its better-than-expected outlook for 2008.
Vivendi upped its price to $27.50, roughly a 45% premium on what Activision’s shares were trading at. Kotick accepted and took the offer to his board. n
