Vivendi's plan to take control of U.S. videogames group Activision Inc. makes strategic sense and values its own games division at twice many estimates.
PARIS: Vivendi's plan to take control of U.S. videogames group Activision Inc. makes strategic sense and values its own games division at twice many estimates, providing uplift to its share price.
Some analysts said, however, the deal will not ease concerns over Vivendi's conglomerate-like structure, which in the past has led to speculation of a possible break up of the company, and could cement the discount placed on the group's total value.
"This operation highlights a very high valuation for Vivendi Games but should strengthen arguments for a big discount to the group," CM-CIC analysts wrote in a research note. CM-CIC has a current target for Vivendi of 33 euros a share.
Vivendi said on Sunday it would acquire up to 68 percent of Activision for $9.9 billion, bringing Vivendi's largely online games division, with titles such as "World of Warcraft", together with Activision's console game-based business.
The complex deal rests on the valuation of its own Vivendi Games division at $8.1 billion, or around 5.5 billion euros.
That left analysts scrambling to adjust their spreadsheets and helped lift Vivendi shares 3 percent on Monday before a conference call at 1330 GMT when management is due to go into more details about the deal. The stock was up 2.5 percent at 32.18 euros at 1050 GMT.
The news also boosted shares in rival Ubisoft Entertainment amid speculation Electronic Arts, which will be eclipsed by Vivendi's new Activision Blizzard entity, may respond by seizing control of the French firm.
UPSIDE
Deutsche Bank said in a research note the Vivendi Games valuation implied 2 euros upside to its target price for Vivendi shares of 35 euros. It had previously given a sum-of-the-parts valuation to Vivendi Games of 2.8 billion euros.
ABN-AMRO, which had valued the games unit at 3.9 billion euros, said the new valuation would imply 1.4 euros of upside to its 35.2 euro target price for Vivendi.
"The 1.5 to 3.5 billion euros difference (to the consensus value of Vivendi Games) translates to 1.5 to 3.5 euros per (Vivendi) share," said UBS analysts, noting they had already valued Vivendi's Games division at 5.1 billion euros. Analysts agreed the combination of the games businesses was a good fit both strategically and geographically, with Vivendi strong in Asia.
A forecast that Blizzard - the Vivendi Games subsidiary that produces World of Warcraft - would have operating profit of $520 million this year also raised eyebrows.
Analysts said it either meant the division was doing much better than expected, or the drag from Vivendi Games other units remained heavy.
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