Activision Inc. (NDAQ:ATVI) announced this weekend that it would merge with Vivendi Games to create the world’s largest pure-play online and console game developer valued at almost $19 billion. The deal Vivendi purchasing 62.9 million newly issued shares of Activision at $27.50 per share, giving Vivendi a 52% stake in the new company to be called Activision Blizzard. Once the transaction closes in the first half of 2008, Activision Blizzard will launch a $4 billion all-cash tender offer to purchase the remaining shares at $27.50 – a 24% premium to the company’s closing price on Friday.

Activision Blizzard is expected to have approximately $3.8 billion in pro-forma combined 2007 revenues and the highest operating margins of any major third-party video game publisher. The new franchises under this name would include World of Warcraft, Guitar Hero, Call of Duty, Tony Hawk, Spider-Man, X-Men, James Bond, Crash Bandicoot and the TRANSFORMERS line. Many investors are bullish on this pure-play saying that growth will only continue to grow as online gaming and consoles become increasingly popular – especially after the Christmas season.

So, is this good news for shareholders. Well, the deal comes in at a 24% premium to Activision’s closing price, which some may see as lacking given the strong performance of the company. Meanwhile, the new company will remain a non-public entity which means shareholders will not be able to capitalize on the synergies and pure-play nature (at least in the United States). Regardless, this situation is definitely one worth watching as it is a combination of two major industry players into one of the best pure-plays.

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