Activision Blizzard (ATVI)

Mike Morhaime and his team have pioneered a new form of gaming with an incredibly attractive business model. It is a business we and many of our competitors found extremely difficult to duplicate without risking many hundreds of millions of dollars, and even then we were unlikely to achieve success.

The name Activision Blizzard is a reflection of the new company’s two principal divisions, but not a replacement for either of our brands. That’s why this partnership and the opportunity it presents are so exciting and attractive. It creates a new leader in global interactive entertainment. With $3.8 billion of projected revenues and $700 million of projected operating profits this calendar year, we are the largest, most profitable pure-play video game publisher.

The transaction itself is immediately accretive to our shareholders and provides an option for shareholders to either receive a significant premium or participate in our future growth. Since Brian and I acquired control of Activision in 1990, we intended to build the largest, most profitable leader in the video game industry. With this transaction, we will achieve that objective.

As far as Activision is concerned, presently over 50% of our revenues are derived from proven franchises that we own outright, including the number one console gaming brand, Guitar Hero, as well as the highly acclaimed Call of Duty franchise. The latest releases based on these franchises are among the top-selling games this year.

In addition, through various licensing agreements, we make games based on such franchises as Spiderman and X-Men, Shrek, James Bond, and Transformers. Last week, we significantly increased our outlook for the third quarter and full fiscal year of 2008, and we raised our revenue expectations from $2.07 billion to $2.3 billion.

We also increased EPS from $0.65 to $0.85, excluding equity-related compensation expense and related tax benefits. Our growth has been consistent, in fact, this is our 16th consecutive year of revenue growth. Over that same period, our compound annual growth rate was in excess of 40% and every four or five years we have doubled our revenues. We’ve also been committed to delivering shareholder value. Since 2000, we have generated compound annual shareholder returns in excess of 35%, and we’ve created more shareholder value than any of our major competitors during this period.

We’ll continue to focus on delivering exceptional returns to our shareholders well into the future. By joining with Vivendi Games, we will now be able to leverage the combined Company’s unique content to create entertainment franchises that cross all gaming platforms. And we believe we’re at the beginning of a tremendous market opportunity. The portions of the worldwide interactive entertainment market the combined companies address is approximately $28 billion this year, and it’s still surprisingly fragmented.

Activision Blizzard’s combined share will be less than 15% of the total, so there is considerable room for growth. And we view the tremendous market opportunities that lies ahead and the majority of the sales in our industry today that are generated from retail products, which we expect will continue for many years to come. Emerging online categories, however, represent great growth and margin expansion opportunities.

The consumers in these categories are different than the audiences that we at Activision currently address. And all of these categories offer operating models that have potentially more leverage than our primary business does today. So when we look at the combined business’s base operating plan, here’s how we believe we can unlock value for all shareholders. The base operating plan and the correlating financial impact that each element will have on EPS will be described in my discussion.