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Deal will Create New Leader in Interactive Entertainment

Activision Blizzard to acquire King Digital Entertainment for $5.9bn

Activision Blizzard, Inc.  and King Digital Entertainment plc have announced the signing of a definitive agreement under which ABS Partners C.V. (“ABS Partners”), a wholly owned subsidiary of Activision Blizzard, will acquire all of the outstanding shares of King for $18.00 in cash per share, for a total equity value of $5.9 billion (the “Acquisition”). The $18.00 per share purchase price implies a 20% premium over King’s 30 October 2015 closing price, a 26% premium over King’s 30 October 2015 enterprise value (which excludes net cash), a 23% premium over King’s one month volume weighted average price per share and a 27% premium over King’s three month volume weighted average price per share. The boards of directors of both Activision Blizzard and King unanimously approved the Acquisition, which is being implemented by means of a scheme of arrangement under Irish law.

The Acquisition is subject to approval by King’s shareholders and the Irish High Court, clearances by the relevant antitrust authorities and other customary closing conditions, and it is currently expected that the Acquisition will be completed by Spring 2016. Activision Blizzard believes that the addition of King’s highly-complementary business will position Activision Blizzard as a global leader in interactive entertainment across mobile, console and PC platforms, and positions the company for future growth. The combined company will have a world-class interactive entertainment portfolio of top-performing franchises, including two of the top five highest-grossing mobile games in the U.S. (Candy Crush Saga®, Candy Crush Soda Saga™), the world’s most successful console game franchise (Call of Duty®), and the world’s most successful personal computing franchise (World of Warcraft®), as well as such well known franchises as Blizzard Entertainment’s Hearthstone®: Heroes of Warcraft™, StarCraft®, and Diablo® and Activision Publishing’s Guitar Hero®, Skylanders® and Destiny, along with over 1,000 game titles in its library. Activision Blizzard expects that this leading content, together with expertise across subscription, upfront purchase, free-to-play and micro-transaction business models will enhance Activision Blizzard’s position as one of the world’s most successful interactive entertainment companies. During the last twelve months ended 30 September 2015, Activision Blizzard had non-GAAP revenues of $4.7bn and King had adjusted revenues of $2.1bn. During the same period Activision Blizzard had adjusted EBITDA of $1.6B and King had adjusted EBITDA of $0.9bn. During the last twelve months ended 30 September 2015, Activision Blizzard had GAAP revenues of $4.9bn and King had IFRS revenues of $2.1bn. During the same period, Activision Blizzard had GAAP net income of $1.1bn, and King had IFRS profit of $0.6bn.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “The combined revenues and profits solidify our position as the largest, most profitable standalone company in interactive entertainment. 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.”

Kotick, added: “Riccardo, Sebastian, and Stephane are some of the best minds in the business, and we have long-admired King for consistently creating incredibly fun, deeply engaging free-to-play games that capture the imaginations of players across ages and demographics. Activision Blizzard will provide King with experience, support and investment to continue to build on their tremendous legacy and reach new potential. We share an unwavering commitment to attracting and developing the best talent in the business, and we are excited about what we will be able to accomplish together.”

Riccardo Zacconi, Chief Executive Officer of King, said, “We are excited to be entering into this Acquisition with Activision Blizzard. 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. 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, to bring the best games in the world to millions of players worldwide. We are very much looking forward to working with Activision Blizzard. We have two teams that, together, will have an amazing footprint, innovative technology, and leadership across platforms, and unique, established IPs to delight one of the largest networks of players in the world.”

Gerhard Florin, Chairman of King’s board of directors, said, “The Acquisition provides a return to King shareholders through the premium that it provides to King’s share price and the immediate liquidity that the Acquisition will provide to all of our shareholders upon completion. The King board of directors believes that Activision Blizzard’s cash offer is attractive given the balance of future opportunities, risks and competitive forces confronting King’s business.”

Activision Blizzard believes that the following points will accelerate Activision Blizzard’s strategic growth plan:

  • One of the Largest Global Entertainment Networks. This Acquisition will create one of the largest global entertainment networks with over half a billion combined monthly active users in 196 countries. This global audience will reach across casual and core gamers, female and male players, and developed and emerging markets throughout the world. Direct relationships with this large and diverse audience will extend Activision Blizzard’s reach, creating opportunities to cross-promote content and engage new players with Activision Blizzard’s franchises.
  • A New Global Leader in Mobile Gaming. Through this Acquisition, Activision Blizzard will become a global leader in mobile gaming—the largest and fastest-growing area of interactive entertainment, that is expected to generate over $36 billion of revenue by the end of 2015 and grow cumulatively by over 50% from 2015 to 2019.
    Diverse Franchise Portfolio with Leadership Across Key Platforms and Genres. The combined company will have a portfolio encompassing 10 of the world’s most iconic interactive entertainment franchises with leading titles including two of the top five highest-grossing mobile games in the U.S. (Candy Crush Saga®, Candy Crush Soda Saga™), the world’s most successful console game franchise (Call of Duty®), and the world’s most successful personal computing franchise (World of Warcraft®), among others. This world-class collection of games spans genres and platforms, drives deep, year-round engagement, and is well-positioned for continued growth.
  • Potential Cross-Network Growth Opportunities. Combining one of the largest mobile gaming communities with Activision Blizzard’s leading franchises creates potential opportunities to grow and cross-promote content to a diverse audience, while providing players more opportunities to engage with its content.
  • Enhanced Capabilities Across Business Models. The combined company’s capabilities across subscription, upfront purchase, free-to-play and micro-transaction business models will accelerate diversification of Activision Blizzard’s revenue streams. This expertise across diverse monetization methods will lead to new opportunities to delight players and provide Activision Blizzard with key capabilities to meet evolving player preferences and reach new untapped audiences. The combined company will benefit from King’s leading mobile capabilities that can be applied across the portfolio from micro-transactions, game analytics and mobile marketing to increase digital revenues.
  • The Most Profitable, Successful Standalone Interactive Entertainment Company in the World. During the last twelve months Activision Blizzard had non-GAAP revenues of $4.7 billion and King had adjusted revenues of $2.1 billion, and for the same period, adjusted EBITDA of $1.6 billion and $0.9 billion, respectively. The combined company will have further diversified and recurring revenues, cash flow generation, and long-term growth opportunities to propel future value creation for shareholders. Activision Blizzard believes the Acquisition will be accretive to 2016 estimated non-GAAP revenues and earnings per share by approximately 30% and significantly accretive to 2016 estimated free cash flow per share. Activision Blizzard expects the combined company to maintain a disciplined capital allocation policy and strong balance sheet.
  • Experienced Management Team. King will continue to be led by Chief Executive Officer Riccardo Zacconi, Chief Creative Officer Sebastian Knutsson, and Chief Operating Officer Stephane Kurgan, all of whom have strong expertise and proven track records in mobile gaming and have entered into long-term employment contracts. It is Activision Blizzard’s intention that King will operate as an independent operating unit, with enhanced resources to support its industry-leading franchises. Activision Blizzard has a strong integration track record, and implementing the Acquisition as structured will minimize disruption and integration risk while maintaining the spirit of creative independence. The combination unites Activision Blizzard’s and King’s highly-complementary cultures, with aligned commitment to innovation, deep respect for the creative process, franchise focus, and emphasis on talent development.

Under the terms of the Acquisition, which has been unanimously approved by the boards of directors of both companies, King’s shareholders will receive $18.00 in cash per share comprising a total equity value of $5.9 billion and an enterprise value of $5.0bn. The purchase price represents a 20% premium over King’s closing price on 30 October 2015, a 23% premium over King’s one month volume weighted average price per share, and a 27% premium over King’s three month volume weighted average price per share and implies a multiple of 6.4x King’s estimated 2015 adjusted EBITDA.

The cash consideration payable by Activision Blizzard under the terms of the Acquisition will be funded from approximately US$3.6 billion of offshore cash on the balance sheet of the Activision Blizzard Group and by an incremental term loan committed by Bank of America Merrill Lynch and Goldman Sachs Bank USA, as incremental lenders, under Activision Blizzard’s existing credit agreement in the amount of US$2.3bn.

The King board of directors, who have been so advised by J.P. Morgan as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the King Directors, J.P. Morgan has taken into account the commercial assessments of the King Directors.

Accordingly, the King Directors unanimously recommended that King’s shareholders vote in favour of the resolutions relating to the Acquisition at the relevant shareholder and scheme meetings.

The Acquisition will also be put to King’s shareholders at both a scheme meeting and a shareholder meeting. In order to become effective, the Scheme must be approved by a majority in number of the King’s shareholders voting at the scheme meeting, either in person or by proxy, representing at least 75% in value of the King shares voted in each relevant share class. In addition, a special resolution implementing the Scheme and approving the related reduction of share capital must be approved by the King shareholders representing at least 75% of votes cast at the shareholder meeting.

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