Merged gamer gets Blizzard of praise


NEW YORK -- Vivendi Games and Activision earned a "wow" from two Wall Street analysts this week after unveiling during the weekend a combination that will create the largest video game maker by market capitalization and profitability.

Plus, at least one analyst predicted that media giants could look at acquiring smaller game companies as a result of the deal.

In the case of the newly merged Activision Blizzard, "WoW," of course, also serves as a pun because the crown jewel title of Vivendi Games is its online juggernaut "World of Warcraft."

One of the two wows came from Wedbush Morgan analyst Michael Pachter. "We think it strengthens Activision's product offering and expands its geographic reach while allowing Vivendi to further monetize its success with 'World of Warcraft,' " he argued.

Pachter raised his Activision price target from $27.50 to $30 but lowered his rating from "strong buy" to "buy."

Bear Stearns analyst Edward Urban echoed this view of a win-win deal. "Activision is able to leverage the strength of its shares to gain an advantageous position in online/ massively multiplayer online games; Vivendi is able to increase market visibility for its high-growth games business," he wrote in a report.

Meanwhile, UBS analyst Ian Whittaker suggested Vivendi, which will control the merged entity dubbed Activision Blizzard, is taking its games operation to "a whole new level" with the combination.

"We like the structure of the transaction, which improves Vivendi's balance sheet efficiency without overpaying for the asset," he said.

Citi Investment Research analyst Brent Thill recommended that "investors should stick with Activision as the stock of the combined entity could trade in a $30-$36 range or $35-$41, assuming earnings per share guidance is 15% conservative."

While the new gaming giant will rival current leader Electronic Arts in terms of revenue and market cap, the Citi analyst said, "We don't think this is a net negative for any major publisher."

After all, EA "has a sound online gaming and Asia penetration strategy, while smaller publishers like THQ and Take-Two could benefit as global media companies are likely to kick-start their video game acquisition strategies post Vivendi's move," he said.

Thill said the deal "puts the industry's No. 1 online gaming assets with immense potential in Asia under the direction of Activision's proven management team."