Activision and Vivendi Games are merging to create the world’s largest independent video game publisher in a deal valued at $18.9 billion. The new company will be known as Activision Blizzard.

Activision is best known for its popular Guitar Hero, Call of Duty and Tony Hawk franchises. Vivendi Games is known for its Crash Bandicoot and Spyro franchises and also includes Blizzard Entertainment’s hugely popular World of Warcraft, StarCraft, Diablo and Warcraft franchises.

Vivendi will contribute Vivendi Games valued at $8.1 billion as well as $1.7 billion in cash. Vivendi Games shares will be converted into 295.3 million new shares of Activision, which places the $8.1 billion value on Vivendi Games. Vivendi Games will also purchase 62.9 million newly issued shares in Activision for $1.7 billion in cash. This will give Vivendi a 52% ownership stake in Acitivision Blizzard. Activision shareholders will receive $27.50 per share.

The merger is expected to be complete in the first half of 2008. Activision Blizzard will operate as a public company trading under ATVI on the Nasdaq market in New York.

EA no longer has claim to being the world’s biggest third party publisher since Activision Blizzard’s annual revenue has been estimated at $3.8 billion, placing it just ahead of EA’s estimated $3.35 to $3.65 billion net revenue for its 2008 fiscal year.

Guitar Hero fans will be thrilled to learn that the deal will also mean that Activision’s Guitar Hero franchise will have access to Vivendi’s Universal Music Group’s library, the largest record label in the world.

Robert Kotick, Activision’s Chairman and Chief Executive Officer commented “This transaction also provides a unique relationship with Universal Music Group – the world’s largest music company – which will benefit Guitar Hero and further extend our sizable leadership position in music-based games.”

Combining forces, leading the industry

“This alliance is a major strategic step for Vivendi and is another illustration of our drive to extend our presence in the entertainment sector” commented Jean-Bernard Lévy, Chairman of the Management Board and Chief Executive Officer of Vivendi.

“The combined strength of the existing management teams at both companies will set the stage for further profitable growth of Activision Blizzard. We look forward to being an active and supportive majority stockholder in a company that is poised to lead the worldwide interactive entertainment industry in the years ahead.”

Kotick said “By combining leaders in mass-market entertainment and subscription-based online games, Activision Blizzard will be the only publisher with leading market positions across all categories of the rapidly growing interactive entertainment software industry and reach the broadest possible audiences.”

“By joining forces with Vivendi Games, we will become the immediate leader in the highly profitable online games business and gain a large footprint in the rapidly growing Asian markets, including China and Korea, while maintaining our leading operating performance across North America and Europe.”

Robert Kotick will be president and CEO of Activision Blizzard with Vivendi Games’ Bruce Hack becoming vice chairman and chief corporate officer.