Vivendi (VIV.PA) plans to sell the bulk of its stake in Activision Blizzard Inc (ATVI.O) to the video games maker and its management for $8.2 billion, the French conglomerate's second blockbuster deal in a week.
Vivendi is selling the shares in Activision, the world's largest video games publisher known for online multi-player game World of Warcraft, for $13.60 each, a 10 percent discount to Thursday's closing price.
The deal shows Vivendi's long-awaited overhaul is gathering pace 18 months after Chairman Jean-Rene Fourtou declared a 'no taboo' era to sort out the company's disparate businesses and reverse a long share price slump.
Still, the Activision sale is surprising, given that Vivendi has talked up media and content as the company's future and Activision Blizzard is its largest and most profitable such business.
Recent media reports said Vivendi was seeking access to the $4.3 billion in cash on Activision's balance sheet via a special dividend, not an outright sale.
A Vivendi spokesman said the company still saw its future in media given its ownership of Universal Music Group and pay-TV unit Canal Plus. "Our focus will be around music, television, cinema and entertainment, and we want to have a 100 percent ownership of our subsidiaries," he said.
The Activision sale will reduce Vivendi's stake in the video games publisher to 12 percent from 61 percent.
What comes next is anybody's guess, said Claudio Aspesi, analyst at Sanford Bernstein Research.
"This company has not had a real fully invested...CEO for the past 12 months," he said, referring to how chairman Fourtou has led the company since sacking chief executive Jean-Bernard Levy last year.
"Vivendi has not defined a strategy for the past year to shareholders. So they are left wondering what will be next."
Vivendi shares were up as much as 5 percent in early trading on Thursday before paring gains to trade 1.6 percent higher at 1136 GMT. Activision was up 13.8 percent in premarket trading in New York.
DE-LEVERAGING
Earlier this week Vivendi said it was in exclusive talks to sell its controlling stake in Maroc Telecom for 4.2 billion euros ($5.56 billion). Its largest unit, the French telecoms operator SFR also announced a network-sharing deal with rival Bouygues Telecom in a bid to cut operating costs.
Vivendi said part of the proceeds from Activision would be used to pay down some of its 13.2 billion euros ($17.47 billion)debt and maintain its current credit ratings, and that the board would decide how to use the rest.
With lower debt levels and a stronger balance sheet, Vivendi may move ahead with splitting off its French telecom operator SFR, to isolate the struggling unit from the media and content businesses.
Analysts at UBS expect Vivendi will need to use one third of the proceeds to keep its leverage levels unchanged.
"We expect the rest to be used for share buybacks or M&A to bulk up the media side of the business," analyst Polo Tang said in a note.
Bernstein's Aspesi said the Activision deal, at $13.60 a share was at a healthy premium to the 2012 average price of $11.85 and a disappointing discount to the $14.02 average for this year.
The sale is the fruit of months of talks between the parent company and the management of the video games maker led by long-time boss Bobby Kotick.
A special committee of independent directors was formed to study options in parallel, including Vivendi selling down part of its stake, a special dividend to the parent, and the management buyout finally agreed on, people familiar with the matter earlier told Reuters.
For Kotick, the deal delivers a long-standing aim to buy back the company he has built into a games powerhouse since 1991 from Vivendi, which took control in 2007.
Activision said early on Friday it would buy back 429 million shares from Vivendi for $5.83 billion.
An investor group led by Kotick and Co-Chairman Brian Kelly will separately purchase about 172 million Activision shares from Vivendi for $2.34 billion.
The consortium, which will own 24.9 percent of Activision, includes Davis Advisors, Leonard Green & Partners, and Chinese web portal Tencent, and investment fund Fidelity Investments.
Activision said it was advised by J.P. Morgan Securities LLC and law firm Skadden, Arps, Slate, Meagher & Flom LLP.
Vivendi was advised by Goldman Sachs and Barclays, according to people familiar with the matter.
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