Call it a case of market cap envy.
Within a two-day span toward the end of last month, Santa Monica-based Activision pulled its public offering off the table, then initiated a 3-for-2 stock split that will take effect Nov. 20.
The moves, which were announced Oct. 23 and Oct. 25, were part of the video game developer’s attempts to gain ground, both in revenue and market presence, on market leader Electronic Arts Inc.
“We have a little more than half their revenues and yet they have eight (actually six) times our market cap,” said Activision Chief Executive Bobby Kotick of the Redwood City-based competitor. “We’re trying to close that gap.”
The company had filed for a 5 million-share stock offering valued at $180 million on July 30, citing “additions to working capital, financing of product development, capital expenditures, joint ventures and strategic acquisitions” at the time. Activision had reported revenues of $111 million for the quarter ended June 30, up from $85 million in the like year-earlier quarter. The company had also managed to retire $25 million in debt and increase its cash balance tenfold over the previous twelve months.
“The feeling was that we didn’t have a big enough market cap,” said Kotick, adding “an offering would give us liquidity.”
But the timing was bad. Even on the eve of the Sept. 11 attacks, the Nasdaq had fallen 16 percent since July 30 while Activision, Electronic Arts and Calabasas Hills-based THQ Inc. stocks declined 8, 10 and 12 percent respectively.
Activision ultimately postponed its stock offering in late September, citing market conditions as the primary reason. The stock had lost nearly a third of its value in the two months since the offering was announced.
The market rewarded the postponement by hiking the stock by 12 percent the following day, and was even more responsive the following week when Activision announced its $20 million stock purchase of Treyarch Invention.
Santa Monica-based Treyarch had produced titles for Activision, such as Tony Hawk’s Pro Skater 2 and Spider-Man. Given that 80 percent of Treyarch’s revenues had been attributed to its new parent company, the move made sense, and the market responded by pushing the stock up another 16 percent.
But the company withdrew its stock offering on Oct. 23 despite the fact that its stock was 5 percent higher than at the offering’s filing date. Kotick denied that any deals had fallen through.
“This is not the time from a volatility standpoint that you want to be doing an offering,” said Kotick. “There’s too much uncertainty.”
Last Thursday, Activision was trading at $38.29.
Having planned to release 35 new titles during the 2002 fiscal year ending March 30 and 60 titles the following year, Activision is hardly backing off from Electronic Arts.
“All of the firms are going to be committing a lot of capital to development,” said Bob DeLean, senior vice president of Memphis-based Morgan Keegan Inc. “I would expect that you would see them come back to the market, if the market starts behaving.”
