Massively^™

In a HUGE news story that we were quite unprepared to have fall into our laps on a lazy Sunday morning, it's been announced that Activision and Vivendi Games have signed a major agreement to the tune of $18.8 billion, that will see the two mega-publishing houses rolled into a company to be known as Activision Blizzard, which will collectively have the biggest and most expansive portfolio of game titles of any company to date - even surpassing rival Electronic Arts in sheer size and scope.

According to the terms of the agreement, Vivendi Games will be merged into Activision as a wholly owned subsidiary, and Vivendi Games stock will be turned into Activision common stock. We're not financial analysts nor are we fluent in legalese, so its difficult for us to interpret the exact terms of the deal, but Vivendi will come out of the merger as a 68% owner of the newly formed company. There's no indication yet if the merger will have any bearing on Blizzard's current or future development plans, though it seems likely that there is going to be a change as the management at the highest levels of the company will have a different face to it.

For some quotes from the parties involved, and our reaction, follow us after the jump.

Jean-Bernard Lévy, Chairman of the Management Board and Chief Executive Officer of Vivendi stated: "This alliance is a major strategic step for Vivendi and is another illustration of our drive to extend our presence in the entertainment sector. By combining Vivendi's games business with Activision, we are creating a worldwide leader in a high-growth industry. We are excited about the opportunities for Activision Blizzard as a broader entertainment software platform. We believe this transaction will create significant value for Activision Blizzard and Vivendi stockholders. In Activision, we have found a partner with a highly complementary business and strong operating team. Bobby Kotick and Brian Kelly are industry pioneers, well known for creating shareholder value. The combined strength of the existing management teams at both companies will set the stage for further profitable growth of Activision Blizzard. We look forward to being an active and supportive majority stockholder in a company that is poised to lead the worldwide interactive entertainment industry in the years ahead."

René Penisson, Member of the Management Board of Vivendi and current Chairman of Vivendi Games, added: "We are very confident that by combining forces, Activision Blizzard will set the highest standards in quality, reputation and profitability, and will bring together the best creative teams in the industry. The combination of this unique product portfolio with highly professional employees gives us great confidence in the growth prospects for Activision Blizzard."

Said Robert Kotick, Activision's Chairman and Chief Executive Officer: "This is an outstanding transaction for Activision and our stockholders, as well as a pivotal event in the continuing transformation of the interactive entertainment industry. By combining leaders in mass-market entertainment and subscription-based online games, Activision Blizzard will be the only publisher with leading market positions across all categories of the rapidly growing interactive entertainment software industry and reach the broadest possible audiences. By joining forces with Vivendi Games, we will become the immediate leader in the highly profitable online games business and gain a large footprint in the rapidly growing Asian markets, including China and Korea, while maintaining our leading operating performance across North America and Europe. Activision stockholders will benefit from significantly increased earnings power and the recurring nature and predictability of subscription-based revenues, while also having the opportunity, if they choose, to receive $27.50 per share for a portion of their shares in the post-closing tender offer."

Kotick continued: "Vivendi Games provides Activision with unique strategic and financial benefits and will allow us to leverage our franchises into emerging online opportunities as Blizzard has done so successfully. Activision has been very focused on margin expansion, and this transaction will meaningfully increase our overall operating margins as we expand our franchises online and in new geographies. Diversifying our revenue base among subscription-based online, console and PC formats, as well as wireless and casual emerging opportunities, gives us the broadest platform to capitalize on industry growth. With Blizzard's successful franchises, such as World of Warcraft, StarCraft and an exciting pipeline of yet-to-be announced titles, Vivendi Games' and Blizzard's management team will join with Activision's strong and experienced leaders to become an even more powerful force for innovation in online and offline interactive entertainment across a wide range of platforms. This transaction also provides a unique relationship with Universal Music Group – the world's largest music company – which will benefit Guitar Hero and further extend our sizable leadership position in music-based games."

Mike Morhaime, President and Chief Executive Officer of Blizzard, added: "Blizzard's industry-leading PC games business, with a track record of nine consecutive bestsellers and a global subscriber base of more than 9.3 million World of Warcraft players, is an exceptional fit for Activision's highly profitable console games business. From our interactions with the Activision team, it is clear we have much in common in terms of our approaches to game development and publishing. Above all, we are looking forward to continue creating great games for Blizzard gamers around the world, and we believe this new partnership will help us to do that even better than before."

Those quotes are all yanked straight from the press release. To say we here at Massively are shocked by this news is a bit of an understatement. To have Blizzard, one of the most perennially respected and independent development and publishing houses in the industry fall under a new massive corporate umbrella is startling. Though Blizzard has been part of the Vivendi company for some time, it's always enjoyed a good degree of independence by virtue of the fact that is was only part of the Vivendi Games division, which itself was owned by Vivendi. This had the effect of shielding Blizzard from direct stockholder pressures, which has allowed them to pursue their "it's done when it's done" philosophy for as long as they have. This is something that is hardly guaranteed in the newly-formed Activision Blizzard company, which by all appearances will face direct scrutiny of Wall Street. Though Vivendi still owns a controlling stake, things are going to change, and though it's probably too early to speculate, we're apprehensive about where this company is headed in the future. We'll have more on this story as it unfolds, so check back with us soon.

[Update: Clarified the terms of the of the agreement and its repercussions.]