Vivendi in Big Activision Deal

Updated from 7:58 a.m. EST

Vivendi says it will acquire a controlling interest in Activision (ATVI Quote) through a transaction that the companies are valuing at $18.9 billion.

The French media and telecom colossus said Sunday that it will merge its video game operations with Activision, maker of titles like Guitar Hero and Call of Duty and rename the venture Activision Blizzard.

The combined units will rival gaming outfits like Electronic Arts (ERTS Quote) and trade under the Activision ticker on Nasdaq.

ATVI-Vivendi is a Game-Changer

Activision shares rose $5.95, or 27%, to $28.10 in pre-market trading Monday.

The deal calls for shares of Vivendi Games, seller of titles like World of Warcraft and Crash Bandicoot to be converted into 295 million new shares of Activision stock at a price of $27.50 a share, according to a joint press release. Vivendi will also buy 63 million shares of Activision stock at $27.50 for a 52% stake in the new company.

In total, Vivendi will acquire the position for $9.8 billion, implying the other 48% of the new firm is worth an additional $9.1 billion.

After the deal closes sometime in the first half of next year, Activision Blizzard will pay up to $4 billion in cash for as many as 145.6 million shares of Activision Blizzard stock at $27.50 a share. The terms represent a 24% premium over the Friday closing price of $22.15.

The new company is expected to be one of the largest video game companies and have approximately $3.8 billion in pro forma combined calendar 2007.

The news comes just five days after Activision boosted its third quarter profit and sales guidance based on robust sales of its two big releases, Guitar Hero III: Legends of Rock and Call of Duty 4.

For the third quarter ending Dec. 31, Activision expects $1.23 billion in revenue and earnings of 70 cents a share, up from its prior revenue of $1.05 billion and earnings of 55 cents a share, excluding charges.