Activision Blizzard buys ‘Candy Crush’ maker in mobile push

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DUBLIN (Reuters) – Video game maker Activision Blizzard ATVI.O will buy the creator of “Candy Crush Saga” King Digital Entertainment KING.N for $ 5.9 billion, as the heavyweight of console and PC games makes a major leap into the faster growing mobile market.

The deal is one of the largest in the industry in recent years, more than double that of Microsoft Inc. MSFT.O A $ 2.5 billion purchase from “Minecraft” maker Mojang last year, and the biggest ever acquisition of a mobile game company.

Dublin-based King’s failure to replicate Candy Crush’s success with follow-up titles such as “Farm Heroes” and “Pet Rescue” has led some investors to believe it could be a wonder to success.

But Activision, whose shares were down 0.5% to $ 34.43 early in trading, is betting that its experience in maintaining long-standing successful franchises like “Call of Duty” and “World of Warcraft” may help him develop new successful series.

Cowen & Co analysts have described the deal as “an absolute theft”, but others have expressed skepticism.

“The combination increases Activision’s reach and scale, but more importantly, gives the company another high-quality intellectual property (intellectual property) creator,” Cowan analysts wrote.

The deal also gives the U.S. company a major presence in the mobile market, where game sales are expected to increase 21% this year to $ 20.6 billion, according to research firm Newzoo.

This compares to an expected growth of 7% for computer games and 2% for game shows and consoles, although they will still represent the lion’s share of the overall industry of $ 91.5 billion, according to industry researchers.

Activision pays $ 18 per share in cash, showing how the company’s fortunes have declined since its IPO in 2012 to $ 22.50 per share. The offer is a 16% premium at King’s close on Monday.

Mascots dressed as characters from the mobile video game “Candy Crush Saga” pose during the IPO of mobile game maker King Digital Entertainment Plc on the New York Stock Exchange floor on March 26, 2014. REUTERS / Brendan McDermid

King’s net sales – still heavily dependent on Candy Crush – fell 16% in the second quarter.

King’s shares were trading at $ 17.73 on Tuesday morning, indicating that investors are not expecting a higher bid.

Analysts at Jefferies & Co were among those voicing doubts about the deal, saying King faces a “daunting task” to replicate the success of Candy Crush.

“We expect a strong dose of investor skepticism, especially given the large size of the transaction,” said the brokerage, which nonetheless recommended investors buy Activision shares.

500 MILLION USERS

With the game industry being driven by blockbusters as much as the movie industry, some companies such as Finnish Rovio, maker of Angry Birds, and online game company Zygna ZNGA.O faded after failing to follow up with new hits.

Activision said purchasing King would help broaden the reach of its games, adding that 60% of King’s players are female and the combined company would have more than 500 million monthly active users across the globe.

Activision, whose action games are primarily aimed at men, focuses primarily on console and PC gaming, while King’s offerings are designed for mobile devices and online gaming.

Activision, based in Santa Monica, Calif., Said the deal will increase its estimated adjusted revenue and earnings for 2016 by about 30%. It will use $ 3.6 billion of cash held abroad to fund the acquisition and borrow the rest.

King will continue to operate as an independent unit headed by chief executive Riccardo Zacconi, who told Reuters that Activision had attracted him because of the company’s expertise in building sustainable franchises.

Apax European Private Equity Fund [APAX.UL] King listed in 2014 and owns a 44.68% stake in the company, according to Thomson Reuters data.

The transaction, which is expected to be finalized by spring 2016, is subject to approval by King shareholders and the Irish High Court, and clearings from antitrust authorities.

Goldman Sachs and Bank of America Merrill Lynch advised Activision on the transaction, while King was advised by JP Morgan.

Additional reporting by Supriya Kurane in Bengaluru, Liana Baker in New York and Freya Berry in London; Editing by Pravin Char and Ted Kerr


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