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(Bloomberg) — Activision Blizzard Inc. agreed to buy King Digital Entertainment Plc for $5.9 billion, unifying console and PC games Call of Duty and World of Warcraft with the leading mobile game Candy Crush Saga.
Activision will pay $18 a share in cash, a 16 percent premium to King Digital’s closing price of $15.54 Monday in New York. The boards of both companies have approved the transaction, Santa Monica, California-based Activision said Monday in a statement.

The agreement adds a top mobile publisher to the arsenal of the biggest U.S. video-game maker, positioning Activision to capitalize on growing smartphone-based play. Mobile gaming is already the industry’s biggest category with revenue forecast to reach $36 billion in 2015, according to the companies. That’s projected to grow by more than 50 percent by 2019.
Activision Chief Executive Officer Bobby Kotick, who won independence from Vivendi SA in 2013, has guided the stock to a 72 percent increase this year, third-best in the Standard & Poor’s 500 Index. The shares fell less than 1 percent on Monday, to $34.57.

“We’re serving half a billion players a month,” Kotick said of the combined companies. “Other than YouTube and Facebook there isn’t a bigger network for entertainment.”

Offshore Cash

Activision said it will use $3.6 billion of cash stored outside the U.S., and borrow the rest with an incremental $2.3 billion term loan from Bank of America Merrill Lynch and Goldman Sachs Bank. The company announced its financial results for the third quarter a day earlier than anticipated. Activision earned 21 cents per share after adjustments on sales of $1.04 billion. Both numbers exceeded analysts’ estimates.

The deal will boost Activision’s estimated non-GAAP revenue and earnings-per-share by about 30 percent in 2016, the company said.
Moody’s Investors Service upgraded Activision’s credit rating to investment grade.

King, based in Dublin, Ireland, will continue to be run by CEO Riccardo Zacconi as an independent unit of Activision with the deal expected to be completed by spring 2016. The Activision bid price of $18 is 20 percent below the $22.50 paid by investors in King’s 2014 initial public offering.

‘Next Step’

King makes two of the five highest-grossing mobile games in the U.S., Candy Crush Saga and Candy Crush Soda Saga. Its shares, which rose steadily in October, advanced 3.9 percent on Monday, giving the company a market value of $4.9 billion, according to data compiled by Bloomberg.

While the developer scored big with Candy Crush, it has struggled to create a successor to that blockbuster. King Digital’s adjusted revenue has fallen in each of the past four quarters while gross bookings, another measure of online sales, dropped 13 percent to $529 million in the second quarter.
“It’s the next step,” said Zacconi, who co-founded King twelve years ago. “This opens up opportunities we didn’t have before.”

(Activision will host a conference call for investors at 8 a.m. Eastern time Tuesday. Call-in number: 9960349)

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net Robert Fenner