Tencent has increased its stake in French game maker Ubisoft, the company behind popular franchises like Assassin’s Creed. But analysts said this has effectively closed the door on a full takeover of the company.
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Shares of game developer Ubisoft plunged more than 16% on Wednesday after prospects for a full takeover faded following a move by Chinese tech giant Tencent to increase its stake in the company.
On Tuesday, the two companies announced that Tencent had invested €300 million ($296.9 million) in Guillemot Brothers Limited, representing a 49.9% stake in the company. Tencent only gets 5% of the voting rights in the company.
Guillemot Brothers Limited is controlled by the Guillemot family and is the majority controlling entity of the family’s approximately 15% stake in Ubisoft.
The Guillemot brothers founded Ubisoft in 1986 and have fought hard to keep the company independent and protected from takeover.
Tencent’s investment values Ubisoft shares at €80 each, an 83% premium to Tuesday’s closing price, and gives it an indirect stake in the French game developer.
The move effectively closes the door on a full takeover of Ubisoft by any party, according to analysts, something investors had been hoping for.
“What this transaction seems to indicate is that any outright sale of Ubisoft to a strategic or financial buyer is highly unlikely. In our opinion, this should be seen as a net negative for the stock (though not for the company itself).” Cowen analysts said in a note on Tuesday.
As part of the deal, Tencent may increase its direct stake in Ubisoft from the current 4.5% to 9.99% of the capital or voting rights. But Tencent will not be able to sell its shares for five years and will not be able to increase its stake in Ubisoft beyond 9.99% over a period of eight years. That effectively rules out a full takeover of the gaming company.
The Ubisoft drama began in 2015 when French media conglomerate Vivendi took a stake in the European gaming firm, eventually becoming its largest shareholder. But the Guillemot family was determined to maintain the company’s independence.
In 2018, after a three-year battle, Vivendi gave up his pursuit of Ubisoft. Tencent stepped in to buy some of the Ubisoft shares Vivendi dumped and the Chinese tech giant ended up owning a 5% stake in the game company.
Ubisoft has faced a number of challenges, including sexual harassment allegations and a lack of successful new titles.
Tencent’s investment continues a flurry of deals in the video game space this year, particularly from Asian companies, which began with Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard in January, followed by Sony’s acquisition of Bungie. , the maker of the hit Halo and Destiny games.
Shenzhen, China-based Tencent has grown into one of the world’s largest game companies over the years, through acquisitions and investments in smaller studios with popular global titles, including the maker of League of Legends. of Legends, Riot Games, for example.
Tighter regulation on gaming in China has pushed Tencent and rival NetEase to expand abroad through investments and acquisitions.
Ubisoft is known for some popular franchises, such as Assassin’s Creed and Rainbow Six. Ubisoft scheduled an event for Saturday to reveal details about upcoming games.
Tencent has typically helped the companies it has invested in run independently, but it has offered a hand in expanding the titles to China and mobile, where it has generally been strong.
Martin Lau, president of Tencent, said the two companies will continue to “develop immersive gaming experiences” and bring Ubisoft’s best-known franchises to mobile devices.