A key to Activision Inc.'s role in its recent $19 billion merger with Vivendi Games was last year's hard-rockin' acquisition of a small video game company with a big product.
When Santa Monica-based Activision bought Red Octane, it got its hands on "Guitar Hero," which has become the top selling music game in the industry.
While hesitant to zero in on one strategic decision, analysts point to the Red Octane acquisition as one of the main reasons to French conglomerate Vivendi deciding to scoop up the $1.5 billion company. It was announced Dec. 2.
Activision's Chief Financial Officer Thomas Tippl agrees.
"It played a significant role," Tippl said. "When we acquired Red Octane last year, the company had sales of $13 million. Now, we are turning 'Guitar Hero' into the fastest growing brand to reach $1 billion in sales."
The merged company will combine the console-based success of Activision's product lines, which in addition to "Guitar Hero," are "Call of Duty" and "Tony Hawk," and Vivendi Games' massive online fantasy game "World of Warcraft," which has 9.3 million paying subscribers.
The two companies are merging at the top of their game.
Before the merger, Activision was expecting a 50 percent revenue growth this year to $2.3 billion, and Vivendi Games forecasting a 30 percent jump to $1.4 billion in 2007.
Bringing in the Guitar Hero franchise, which followed Activision's acquisition of Infinity Ward, the company behind war game "Call of Duty," was by far "the most impactful move, the biggest move they'd made in the past five years," said analyst Arvind Bhatia of Sterne Agee & Leach.
Paris-based Vivendi, the $29 billion entertainment and telecom conglomerate announced it will exchange its Vivendi Games and $1.7 billion in cash for a 52 percent stake in the merged company, called Activision Blizzard. The name is a blend of Vivendi Games' Blizzard Entertainment, the maker of "World of Warcraft."
It's a rare merger and acquisition deal that marries two companies that don't need to be fixed, Tippl said.
"If you look at the history of M & A; transactions, most of them fail because it's the case of a well-performing company taking over an underperforming company believing it can run it better, or two weak players coming together to scale their businesses," he said. "It's very rare that two best performing companies in the sector get together."
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