Tencent has increased its stake in French game maker Ubisoft, the company behind popular franchises like Assassin’s Creed. But analysts said it effectively closed the door to 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 were dampened following a decision by Chinese tech giant Tencent to increase its stake in the society.
On Tuesday, the two companies announced that Tencent had invested 300 million euros ($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 fought to keep the company independent and safe from takeover.
Tencent’s investment values Ubisoft shares at 80 euros 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 to a full takeover of Ubisoft by any party analysts say is what investors have been waiting for.
“What this transaction seems to indicate is that a complete sale of Ubisoft to a strategic or financial buyer is very unlikely. In our view, this should be considered a net negative for stocks (but not for the ‘company itself),” Cowen analysts said in a note on Tuesday.
As part of the deal, Tencent is able to 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% for a period of eight years. This 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 games company, eventually becoming its largest shareholder. But the Guillemot family was determined to keep the business independent.
In 2018, after a three-year battle, Vivendi dropped its pursuit of Ubisoft. Tencent stepped in to buy some of the Ubisoft shares that Vivendi offloaded and the Chinese tech giant ended up owning a 5% stake in the gaming company.
Ubisoft has faced a number of challenges, including allegations of sexual harassment and a lack of new hit titles.
Tencent’s investment continues a wave of gaming deals this year, particularly from Asian companies, which began with Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard. dollars in January, followed by Sony’s acquisition of Bungie, the maker of the hit games Halo and Destiny.
Tencent, based in Shenzhen, China, has become one of the world’s biggest games companies over the years, through acquisitions and investments in smaller studios with popular global titles, including the maker of League of Legends, Riot Games, for example.
Tighter gaming regulations in China have pushed Tencent and rival NetEase to expand overseas through investment and acquisitions.
Ubisoft is known for some popular franchises including Assassin’s Creed and Rainbow Six. Ubisoft has scheduled an event on Saturday to reveal details about upcoming games.
Tencent has generally helped the companies it has invested in operate independently, but has offered a helping hand to expand titles in 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.
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