Activision Blizzard, one of the biggest gaming company in the world, announced this week that it will plunk down $5.9 billion for King Digital Entertainment.
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Many industry observers point out that the company bought by Activision could possibly be a one-hit wonder although it does have the audience numbers to back up its value.
Under the terms of the agreement, ABS Partners C.V., a wholly owned subsidiary of Activision Blizzard, will pay $18 in cash per share of King Digital stock, according to the press release.
The company’s player networks on mobile and Facebook comprise around 474 million monthly active users as of the third quarter of 2015.
“With a combined global network of more than half a billion monthly active users, our potential to reach audiences around the world on the device of their choosing enables us to deliver great games to even bigger audiences than ever before”, he said.
Activision shares were up 1.5 percent at US$35.09 in early trade Tuesday, while King shares jumped 14.0 percent to US$17.72.
Both boards have approved this deal unanimously & expect it to be complete by Spring of 2016.
Activision said mobile gaming is expected to generate more than $36 billion in revenue by the end of 2015 and grow cumulatively by more than 50 percent from 2015 to 2019. But, King’s shareholders still need to approve it and so does the Irish High Court.
Santa Monica, California-based Activision Blizzard is an interactive entertainment major known for its games Call of Duty, Destiny, Skylanders, World of Warcraft and others. It has over 1,000 game titles which are played across the world in various platforms.
For the year ended September 2015, Activision’s revenue was $4.9 billion and net income of $1.1 billion, while during the same period King reported revenue of $2.1 billion and profit of $600 million.
“We think now is the right time to enter mobile gaming in a meaningful way”, said Activision chief executive Bob Kotick. Activision will use approximately $3.6 billion of offshore cash on its balance sheet to fund the deal, along with $2.3 billion in debt financing under existing credit agreements.
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CEO of King, Riccardo Zacconi, CCO Sebastian Knutsson and COO Stephane Kurgan said that they will continue running King independently. COO at Activision Thomas Tippl said that they will operate independently just like Blizzard has been since their merger in 2008. Archer Daniels has struggled in the wake of lower interest in corn ethanol as a fuel and a strong US dollar, which makes USA agricultural products more expensive to export. Finally, Bank of America downgraded shares of Activision Blizzard from a “buy” rating to a “neutral” rating and boosted their target price for the stock from $31.00 to $37.00 in a report on Monday.
