The world's biggest video-game publisher appears on an MSN Money list of recommended stocks. Here are StockScouter's investment ideas.
Activision Blizzard (ATVI) shares soared 15% today as Wall Street cheered the news that the video-game publisher is becoming independent again.
In 2008, French media and telecommunications company Vivendi (VIVEF) took a controlling stake in Activision, based in Santa Monica, Calif., creating a video-game powerhouse that combined Vivendi's Blizzard Entertainment unit (developer of the online role-playing game "World of Warcraft") with the maker of "Call of Duty" and other popular console games.
Activision on Thursday said it would buy 429 million shares from Vivendi at $13.60 a share, funding the purchase with a combination of $1.2 billion in cash and the assumption of $4.6 billion in debt financing.
Separately, an investment group led by Activision CEO Bobby Kotick, with partners that include co-Chairman Brian Kelly and Chinese Internet portal Tencent (TCEHY), said it would acquire about 172 million shares for $2.3 billion, with the partners kicking in a combined $100 million or so of their own money.
The transactions will shrink Vivendi's stake in Activision Blizzard to about 12% from 61%. Vivendi, headquartered in Paris, had been shopping its stake in Activision Blizzard so it could concentrate on its music, television and cinema assets. It's the parent of the world's biggest music company, Universal Music Group, as well as pay-TV provider Canal Plus. Vivendi said some of the proceeds from the divestiture will also be used to pay down debt.
The separation of Activision from Vivendi is a "win-win," wrote analyst Colin Sebastian of Robert W. Baird after the news broke. "We believe this is a more favorable outcome for Activision shareholders than the alternative 'special dividend' or sale of Vivendi's shares to an alternative strategic buyer," Sebastian added.
Activision Blizzard appears on a daily ranking created with StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude stocks with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.
Kotick has been associated with Activision since 1990, when he and Kelly bought a 25% stake in the video-game company. Kotick was named chief executive the following year.
This week's buyout ends months of uncertainty for Kotick and other Activision employees, who were well aware of Vivendi's intention to extract cash from its Activision investment as management focuses on a sweeping restructuring, announced a year ago, under pressure from shareholders who want a more streamlined company focused on media content.
In a statement, Kotick said the deals represent "a tremendous opportunity" for Activision Blizzard and its shareholders, including Vivendi, and establish an "independent company with a best-in-class franchise portfolio and the focus and flexibility to drive long-term shareholder value and expand our leadership position as one of the world's most important entertainment companies."
With independence assured, Kotick is free to focus on the introduction later this year of new Xbox and PlayStation consoles, from Microsoft (MSFT) and Sony (SNE), respectively, that some analysts predict will be the last generation of game consoles. (Microsoft publishes MSN Money.)
Console games accounted for about 43% of Activision's sales in 2012.
Activision Blizzard has a StockScouter rating of 10, meaning the stock is expected to significantly outperform the broader market over the next six months with less than average risk.
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Here at MSN Money, we think our StockScouter rating system is about as good as it gets when you're trying to decide where to invest. StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.
The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility. Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.
In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.
An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 892% through June 30, 2013.
Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool. Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.
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