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Call of Candy: Activision buys King for US$5.9bn

Last updated: 05:00 04 Nov 2015 AEDT, First published: 20:20 03 Nov 2015 AEDT

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It comes days before the release of the next instalment of Call of Duty, gaming’s top selling franchise

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Candy Crush maker King Digital Entertainment (NYSE:KING) is to be bought for US$5.9bn by Activision Blizzard (NASDAQ:ATVI), the games developers behind hit franchises such as Call of Duty, World of Warcraft and Guitar Hero.

Shares in both firms surged. Activision added almost 8% in New York to US$37.28, while King  Digital added amost 15% to US$17.84. 

Activision is paying US$18 per share to acquire the mobile games group, and the transaction has been unanimously approved by the boards of both companies.

It marks a loss of about 20% from Kings March 2014 IPO price of US$22.50 – though it is quite a way north of the stock’s 52 week low of US$11.32 and is a good premium to the share price lately.

The deal sets up Activision to become leader in interactive entertainment across mobile, console and PC platforms, and positions the company for future growth, it said.

“The combined revenues and profits solidify our position as the largest, most profitable standalone company in interactive entertainment,” said chief executive Bobby Kotick.

“With a combined global network of more than half a billion monthly active users, our potential to reach audiences around the world on the device of their choosing enables us to deliver great games to even bigger audiences than ever before.”

Market commentators have speculated that a key attraction of the deal could be the use of King’s mobile expertise in the roll-out of new smartphone and tablet based versions of Activision titles.

In this regard it is perhaps notable that Bethesda, the studio behind Fallout 4 which will rival Activision’s Call of Duty for Christmas sales, in the run-up to its launch rolled out the standalone Fallout Shelter mobile game.

The mobile companion game has been both a successful game in its own right and an effective marketing tool ahead of the release of the blockbuster game.

Quite how King and Activision integrate strategically will only become apparent in the coming months, though it appears they initially continue as they were.

King, as the mobile games division of Activision, will continue to be run as a separate entity under current chief executive Riccardo Zacconi.

Zacconi, in a statement, said: “Since 2003, we have built one of the largest player networks on mobile and Facebook, with 474 million monthly active users in the third quarter 2015, and our talented team has created some of the most successful mobile game franchises.

“We believe that the acquisition will position us very well for the next phase of our company’s evolution and will bring clear benefits to our players and employees.”

King floated last year with a peaky valuation, though it has struggled to expand upon the breakthrough success of the Candy Crush puzzle game which despite launching in 2012 still accounts for about 60% of the group’s sales.

It is predicted, according to today’s statement, that the enlarged gaming company will have revenues of nearly US$7bn and earnings of US$2.5bn – with King contributing US$2.1bn and US$900mln respectively.

The deal comes days before the release of the next instalment of Call of Duty, gaming’s top selling franchise.

Call of Duty: Black Ops III goes on sale on November 6.

Sales of the first person shoot-em-up will be keenly watched after 2014’s release - Call of Duty: Advanced Warfare – generated around 6% less revenue than the preceding title Call of Duty: Ghosts in 2013. Advanced Warfare did, of course, still smash the US$1bn sales marker.

The franchise, which is twelve years old and after Black Ops III will have seen twelve primary game releases, has racked up some US$10bn of sales so far.

Nevertheless, it is still some way behind Activision Blizzard’s other flagship franchise World Of Warcraft. The subscription based ‘massively multiplayer online role playing game’ (or MMORPG) passed the US$10bn marker back in 2012.

Activision, in this morning’s statement, highlighted that with the addition of King’s Candy Crush Saga and the Soda Saga spin off it would now have two of the top grossing mobile games, as well as the most successful console franchise (CoD) and most successful PC franchise (WoW).

“This world-class collection of games spans genres and platforms, drives deep, year-round engagement, and is well-positioned for continued growth,” it added.

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