Under the terms of the agreement, Vivendi Games will be merged with a wholly owned subsidiary of Activision in a deal valued at nearly $19bn.
The new company, Activision Blizzard, will hold the rights to some of the most well known video game franchises, including Guitar Hero, Call of Duty, Tony Hawk, Sypro, Warcraft, StarCraft and Diablo.
Activision Blizzard expects to generate approximately 70 per cent of its revenues from these franchises.
"Blizzard's industry-leading PC games business is an exceptional fit for Activision's highly profitable console games business," said Mike Morhaime, president and chief executive at Blizzard.
"We have much in common in terms of our approaches to game development and publishing, and we look forward to creating great games for Blizzard gamers around the world."
Shares of Vivendi Games will be converted into new shares of Activision common stock. Activision shareholders will receive $27.50 a share, a premium of 31 per cent on Activision's average closing price over the past 20 trading days.
Vivendi Games will then buy a 52 per cent stake in Activision for $1.7bn in cash.
Activision Blizzard expects the business combination to give it the most diversified and broadest portfolio of interactive entertainment assets in its industry, allowing it to capitalise on the worldwide growth in interactive entertainment.
"This is an outstanding transaction for Activision and our stockholders, as well as a pivotal event in the continuing transformation of the interactive entertainment industry," said Robert Kotick, chairman and chief executive of Activision.
"Activision Blizzard will be the only publisher with leading market positions across all categories in the rapidly growing interactive entertainment software industry."
Kotick added that the deal will automatically generate a relationship between Activision Blizzard and Universal Music Group, the world's largest music company, giving it another foothold in popular music titles such as Guitar Hero.
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