Activision Blizzard scoops up 'Candy Crush' maker for $5.9B

Mike Snider and Brett Molina | USA TODAY

Show Caption Hide Caption Activision Blizzard buys 'Candy Crush' USA TODAY's Mike Snider and Brett Molina talk about Activision Blizzard's acquisition of 'Candy Crush.'

The top video game publisher in the U.S. is acquiring Candy Crush Saga-maker King Digital for $5.9 billion.

In a deal announced late Monday, Activision Blizzard (ATVI) — publisher of popular video games Call of Duty and Destiny — will acquire all outstanding King shares for $18.00 in cash per share, a 20% premium to King's (KING) Oct. 30 closing share price.

The deal brings together two of the top five highest-grossing mobile games in the U.S. (Candy Crush Saga and Candy Crush Soda Saga), with the top global console video-game franchise in Call of Duty, and the world’s biggest PC game franchise, World of Warcraft, the companies said.

Shares of King jumped 14% in afternoon trading Tuesday, while Activision shares surged 6.6%.

During the twelve months ending Sept. 30, 2015, the companies had adjusted revenues of $4.7 billion (Activision Blizzard) and $2.1 billion (King).

"They built an incredible business," said Activision Blizzard CEO Robert Kotick during an interview. "When we think about people who create compelling content and satisfy large audiences, they’ve been brilliant at it. We thought it would make a great opportunity for us to enter a new market." with an incredibly talented management team."

King CEO Riccardo Zacconi, along with Chief Creative Officer Sebastian Knutsson, and COO Stephane Kurgan, will continue to run King as an independent operating unit.

"We will combine our expertise in mobile and free-to-play with Activision Blizzard’s world-class brands and proven track record of building and sustaining the most successful franchises," Zacconi said in a statement.

Both companies boards have unanimously approved the deal and expect it to be completed by spring 2016. However, it must be approved by King’s shareholders and the Irish High Court. Activision chief operating officer Thomas Tippl said during a conference call Tuesday King will operate independently, similar to how Blizzard has operated since the two video game publishers merged in 2008.

King Digital surged in value off the strength of Candy Crush Saga, one of mobile's hottest games, particularly on Facebook. The company's stock began trading in March 2014 on The New York Stock Exchange. Since then, King has been pushing to prove to investors it's beyond a one-hit wonder.

Last quarter, King reported 61% of its gross bookings — money spent by players — came from games unrelated to Candy Crush Saga, up from 41% the same quarter a year ago. However, King's adjusted profit in the second quarter was $155.5 million, down from $188 million in the year-ago quarter. Its stock, which priced at $22.50 in the IPO debut 2014, trades at $15.54.

The deal gives Activision immediate access to the growing mobile gaming audience, now the largest in video games overall. Mobile games spending is forecast to hit $32 billion this year, according to IHS Technology.

"There is a huge fan base, and we weren't really creating a lot of content for that enormous fan base," says Kotick, noting talks with King on a potential deal started last spring.

The publisher's biggest mobile hit has been the competitive card game Hearthstone: Heroes of Warcraft from Blizzard Entertainment. In May, the free-to-play game topped 30 million users. "Other than Hearthstone, we haven't really participated all that much," says Kotick of Activision's involvement in the mobile games space.

Kotick also notes King's popularity among women, representing 60% of their player base. "We love the idea of being able to reach an entirely new audience," he says. "Our games have been historically have been more focused on male audiences. We now have the opportunity to address hundreds of millions of female customers, which is very exciting."

King’s mobile prowess should make the deal pay off for Activision Blizzard, says Wedbush Securities’ Michael Pachter. "Activision had over $3 billion in foreign cash, and King generates $800 million a year in free cash flow,” he said. "If we believe that King can keep replicating its formula for keeping its players engaged, the deal should end up being a good one.”

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