Vivendi will acquire a controlling stake in Activision in a deal that seeks to challenge Electronic Arts as the leading videogame publisher.

The deal will merge Vivendi's Blizzard Entertainment game business, which includes the online game World of Warcraft, with Activision, whose top-selling titles include Guitar Hero, Call of Duty, and the Tony Hawk series. Vivendi will also invest $1.7 billion in cash into the combined company, which will be renamed Activision Blizzard.

"This  alliance is a major strategic step for Vivendi and is another illustration of our drive to extend our presence in the entertainment sector," said Jean-Bernard Lévy, chief executive of Vivendi. "By combining Vivendi's games business with Activision, we are creating a worldwide  leader in a high-growth industry."

Matt Richtel in the New York Times points out that the deal comes at a time when videogame software sales have been booming while the dominance of Sony, and its PlayStation 3 console, is being eroded by the Wii, made by Nintendo.

Vivendi's strength has been in online games, and Activision focuses on games for consoles.

The Lex column in the Financial Times notes that Vivendi gets Activision's well-regarded management (Bobby Kotick and Brian Kelly) and a stock listing that it can use as currency to attract videogame talent. Activision, meanwhile, gets exposure to new Asian markets, as well as to online games, Lex says.

Activision Blizzard has a combined annual revenue of about $3.8 billion, higher than Electronic Arts' revenue of $3.1 billion.

But Daniel Terdiman, on the Geek Gestalt blog on Cnet, says that any talk about the overtaking of Electronic Arts may be premature.

"E.A. may have its problems, what with laid-off employees, questions about its ability to create hit original games, and a stock price that had dropped into uncomfortable territory earlier this year before rebounding. But there can be little doubt that it is the best-known brand in the business," says Terdiman.

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