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Activision Blizzard Inc.(ATVI - Snapshot Report) recently received a setback when a U.S. Court put a hold on Vivendi SA’s plan to sell its stake in the company. Vivendi had planned to sell 85.0% of its stake in Activision to the latter for $8.2 billion.

The lawsuit was filed by one of the shareholders of Activision against both the parties, based on which the Delaware Chancery court issued a preliminary injunction to stop the transaction for the time being.

Vivendi had expressed its intent to sell its stake in Activision in Jul 2013, which would enable it to effectively split its Media and Telecom assets. The divestment would bring down Vivendi’s stake in Activision to 12.0% while the other investor group would control 24.9%.

As per the terms of the agreement, Activision was supposed to buy the stake from Vivendi in two separate transactions. Activision was supposed to first purchase 429 million shares from Vivendi for $5.83 billion. A separate transaction led by a group including chief executive Bobby Kotick and co-chairman Brian Kelly was supposed to buy another 172 million shares worth $2.34 billion from Vivendi.

Activision’s decision to accept Vivendi’s proposal indicates that it is trying to increase its controlling stake so that it can take decisions more freely. Vivendi wanted to have access to the $4.3 billion in cash that is reflected in the balance sheet of Activision by way of dividend or share sale. But as Activision wanted to have controlling stake from the French company so it agreed to buy back shares from Vivendi.

Both the parties cannot proceed with the deal further, unless the court modifies its decision and the transaction gets the approval of Activision shareholders. We believe that the court’s decision is a temporary setback for both the parties. Activision has already said that it remains committed to the deal and the completion of the deal will boost its stock price going forward.

Moreover, Activision’s strong product pipeline positions it well for growth going forward. However, stiff competition from Electronic Arts (EA - Analyst Report), Take-Two Interactive Software Inc. (TTWO - Snapshot Report) and Zynga Inc. (ZNGA - Snapshot Report) may pose some challenges.

Activision has a Zacks Rank #1 (Strong Buy).

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