Activision and Vivendi teamed up to create on of the world's largest video-game maker this weekend, rivaling long-time No. 1, Electronic Arts .

Paris-based Vivendi SA and Santa Monica, Calif.-based Activision Inc. said Sunday that their respective board members had approved a plan to combine Activision with the French company's game unit, Vivendi Games, which includes Blizzard and three other divisions.

The deal will bring together some of the hottest franchises in the game sector. Activision owns several hot-selling game franchises including the Guitar Hero line of music games that has been one of this year's hottest selling game properties, as well as Tony Hawk and Call of Duty.

Vivendi, meanwhile, owns Blizzard Entertainment, the force behind World of Warcraft, one of the most popular multi-player games on PC's.

The $18.9 billion deal will created an electronic entertainment juggernaut, rivaling Electronic Arts, the world's current No. 1 publisher. It will also combine the strengths of two strong companies with multiple assets.

The merger puts together Activision's leading position in console games and Vivendi's World of Warcraft, the world's largest massive multiplayer online game (MMOG) with 9.3 million subscribers, explained analyst Todd Mitchell of Kaufman Brothers. The merger will create a competitor with the same scale and resources as EA.

The Activision/Vivendi Games entity, now labeled Activision Blizzard after its start studio, is expects to generate $3.8 billion in revenues for calendar 2007, while EA is expecting to generate $3.9 billion for the fiscal year ending in March, according to Thomson Financial.

The deal will be carried out in two steps. First, Vivendi's game unit, Vivendi Games, will merge with Activision and Vivendi will purchase $1.7 billion worth of Activision shares for $27.50 each, giving it 52% of the new company.

Then, within five days of the deal closing, Activision Blizzard will do a $4 billion all-cash tender offer to buy up to 146.5 million of its own shares, raising Vivendi's stake to 68%.

EA is not standing still. Last year, the publisher acquired Mythic Entertainment and BioWare/Pandemic, two companies that are developing MMOGs

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