Guys,
After thinking about it for a while and after reading these articles today, ATVI is either gearing themselves up to go it alone (as several people have mentioned here) or are dressing themselves up for a suitor outside the interactive gaming community (Just as CUC took over Davidson and Blizzard).
Enjoy and of course, any comment welcome!
Did Activision Answer $64,000 Question With Stock Offering?
(Multimedia Wire, 12/8/97)
Activision [ATVI] says its $75m stock offering Friday didn't
quell rumors that it will be acquired, but allows the company to gain
publishing rights and run the company.
The move doesn't kill the rumors that Activision will be
acquired, says John Baker, senior VP of corporate development. It only
"insulates" rumors of the company being acquired because it is
financially desperate.
Explaining the stock offering, Baker says, "It never hurts to have
cash" when looking to acquire a title's publishing rights. Activision
won't use the cash to buy a company, he says. It will continue to make
acquisitions in stock-for-stock deals.
Not everyone agrees with that assessment. "They don't need $75m
to run the company," they need it for an "aggressive push" to buy
titles or stakes in other companies, argues Individual Investor Group
analyst Aaron Edelheit. "[The stock placement] is the greatest
indication of whether they want to get acquired or [buy] companies
themselves," he adds. "They don't want to be acquired," he says.
Activision intends to privately place $75m of seven-year
Convertible Subordinate Notes to finance development, product
acquisition and corporate acquisition efforts.
[More analysis from Multimedia Wire, 12/8/97]
Activision [ATVI] made news last week by acquiring two European
distributors, expanding its international presence and doubling
(trailing) revenues in one fell swoop. Publishers typically acquire
distributors to: 1) focus distribution efforts on their own titles and
increase product sales; 2) add additional revenues--even if cosmetic--
to impress Wall Street; and 3) reduce costs by leveraging an otherwise
inefficient distribution system (too few products) through
distributing for other companies. How did Activision fare? Assuming
NBG opens up the lucrative German PC market to Activision, it's
probably a useful acquisition. Focusing on CentreSoft, it's less clear
if this is a "win."
CentreSoft's primary business is distribution to independent retail
outlets in the UK (the top publishers usually go direct to the big
chain stores). The company currently distributes for Activision and
other major publishers, including Sony (PlayStation software and
hardware), Eidos, Virgin, Hasbro, and BMG. CentreSoft is widely
regarded as the best in the sector, but the sector is only 20% of the
overall UK market--in other words, a niche within a niche, from an
American point of view. This is probably the biggest concern; that
Activision used so many resources to acquire select expertise in a
small market. After the acquisition, Activision's distribution may not
improve substantially, even in the UK. CentreSoft will be able to
focus more on Activision's products, but assuming the distributor was
already doing its job, there's not much leverage there. On the other
hand, Activision may use CentreSoft to handle the UK chain stores, and
perhaps to push into the rest of Europe. Given CentreSoft's abilities,
it's certainly possible.
The rap on Activision has been that it is "too small" for their hits-
based strategy. Releasing only "A" titles--and only a small number
each year--gives Activision little room for error. These acquisitions
provide at least the appearance of growth, even if actual product
sales remain the same, simply from placing Activision higher on the
food chain. CentreSoft would have added $70 mill. to combined revenues
over the past year. The challenge is holding on to all of that $70
mill., since only a small portion comes from Activision's products.
It's not uncommon for publishers to use competitors for international
distribution, but does U.K.-based Eidos really want to use
Activision's distribution in parts of England?
One thing is clear, however. Activision is not positioning itself for
acquisition. Why spend so much on an asset (UK distribution to
independent stores) that every prospective buyer already has? It's not
like buying developers, which would make Activision more attractive to
buyers. Oddly enough, despite questions regarding the CentreSoft
acquisition, we find Activision's brazen confidence refreshing. If any
mid-sizer can grow on its own to join the big guys, it can. |
