Home Business Tencent is set to double Ubisoft’s stake in its latest overseas gambit

Tencent is set to double Ubisoft’s stake in its latest overseas gambit

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Tencent Holdings is set to more than double its stake in Ubisoft Entertainment SA, its latest major overseas deal and providing the founding Guillemo brothers with capital to get the company back on track.

According to the statement, Tencent will buy 49.9% of the holding company Guillemot Brothers. The Chinese tech giant will pay 200 million euros ($198 million) to buy an indirect stake in Ubisoft at an estimated price of 80 euros per share and invest another 100 million euros in the holding company. The deal also allows Tencent to eventually increase its direct stake to 9.99% from 4.5% currently. The brothers will remain in control and Tencent will not have any operational veto rights.

Tencent is ramping up efforts to expand internationally after a slumping economy and tightening regulations halted growth in the country. It recently bought a stake in Japan’s FromSoftware Inc., maker of the global hit Elden Ring, and last year spent $1.26 billion to acquire British game studio Sumo Group. To date, Tencent’s strategy has been to take popular franchises from investment companies like Activision Blizzard Inc. and turn them into mobile hits — as it did with Call of Duty Mobile and PUBG Mobile.

Tencent, which bought a stake in Assassin’s Creed developer Ubisoft about five years ago, is likely to help the French studio bring franchises like Rainbow Six Siege to China. Beijing is gradually lifting restrictions on gaming across the country.

“Then and now, we plan to collaborate on mobile games using Ubisoft IP and bring key Ubisoft PC games to China,” said Matthew Kanterman, director of research at Ball Metaverse Research Partners. “If and when the regulatory environment improves and we start to see foreign gaming approvals again, these popular global franchises can stand out in China’s increasingly saturated and mature online gaming market.”

US-traded shares of Ubisoft rose 3.7% on Tuesday. The French video game publisher has been identified as a takeover target as concerns over launch delays and allegations of sexual misconduct have sent shares down about 45% since the start of last year. Its status as one of the few remaining independent video game publishers also spurred interest after Microsoft Corp. agreed to buy Activision Blizzard.

Expanding Tencent’s stake will give the brothers, who founded Ubisoft in 1986, some certainty on the shareholder register while the recovery plan takes effect. Chief executive Yves Guillemot cut costs and lowered his full-year sales target in July as Ubisoft announced it was delaying its upcoming Avatar game from the 2022 holiday season to the next financial year.

The Tencent deal “helps us bring stability to the company’s stock,” Guillemot said in an interview.

Shenzhen-based Tencent has recently been selling off assets, including some investments in Chinese online retailer JD.com Inc. and Singapore-based e-commerce company Sea Ltd., which has a popular mobile title in Free Fire. Yuxin Ren, who heads Tencent’s gaming business, stepped down from Sea’s board this week, signaling a realignment of the firm’s priorities.

Tencent initially acquired a 5% stake in Ubisoft in 2018 to help it thwart a hostile takeover by Vivendi. Ubisoft said the latest deal includes a partnership with Tencent to bring some of its biggest franchises to mobile platforms, but it also comes in handy at a time when Ubisoft is struggling.

Ubisoft has struggled with a weak game pipeline, delays and talent retention issues since a 2020 sexual misconduct scandal led to the ouster of top executives. Over the summer, the company also delayed the release of Assassin’s Creed Mirage, a smaller entry in the action franchise. Mirage will be set in Baghdad and will look to return to the franchise’s stealth roots, according to Bloomberg. Ubisoft will hold an event on Saturday to reveal more about the future of Assassin’s Creed, as well as other upcoming games.

However, the founding family will retain control. Tencent will not be able to sell its stake in Ubisoft for five years, and after that the Guillemot family will have priority in any sale. In addition, Tencent will not be able to increase its stake in Ubisoft beyond 9.99% of Ubisoft’s capital and voting rights for eight years.

After the purchase from the Guillemot brothers, Tencent will have a total stake of 11.3% in Ubisoft. According to Bloomberg calculations, it could hold up to 16.8% of the business through the increase in direct ownership that was allowed.

The deal could allow the total stake in Ubisoft owned by Tencent, the Guillemot family and brothers to grow to 29.9% of Ubisoft’s voting rights, the statement said. Tencent also provides a long-term unsecured loan to the holding company to repay debt.

The deals still leave room for another investor to step in.

“If someone wants to bid on all of Ubisoft, they still can, and the bid will be reviewed by our board,” CFO Frederic Duguet said in an interview.

© 2022 Bloomberg

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