Activision Buys Out Vivendi For $5.83 Billion
Last week, we reported that Activision’s parent company (and majority owner) Vivendi was going to make the publisher pay out a massive dividend that would nearly tap all of Activision’s cash reserves.
Just days later, Activision decided that it wasn’t going to pay the dividend and indicated such by buying back Vivendi’s majority stake in the company in a deal with $5.83 billion.
In a separate deal, a new investment group led by Activision CEO Bobby Kotick and chairman Brian Kelly will purchase 172 million shares, on top of Activision’s 429 million share buyback, from Vivendi for $2.34 billion. This doesn’t completely buy out Vivendi. They’ll still hold 83 million shares which is good for a 12% ownership stake.
Rather than being out billions of dollars for the Vivendi dividend, Activision will fund the share buy back with $1.2 billion of its cash on hand. (Activision has $4.3 billion in cash and cash equivalents.) The remaining $4.6 billion will be funded through debt (i.e. they’re going to take out loans to cover the remaining which will leave them in a better cash position than paying out a massive lump sum for a dividend).
Structuring their financing of the share buyback like this allows Activision to still have over $3 billion in cash and cash equivalents on their books. Sure, this will add quite a bit of interest expense to the income statement but it spreads the cash flow hit over time as a result of paying back the debt rather than one big cash outflow for the dividend.
This buy back looks like a smart financial move for Activision. A group of investors is usually better at steering a company than just one majority owner. Also, this gives Activision a lot of cash to provide stability going forward. Investors agree with me. Activision’s stock went up 15% after this announcement.