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Electronic Arts makes move on Ubi Soft

World's largest video game publisher says it is buying almost 20 percent of the French video game maker Ubi Soft Entertainment, fueling speculation that Electronic Arts might bid for the whole company.
/ Source: Reuters

Electronic Arts Inc., the world’s largest video game publisher, on Monday said it was buying almost 20 percent of the French video game maker Ubi Soft Entertainment, fueling speculation it might bid for the whole company.

Ubi Soft shares jumped 24 percent on the news. EA is buying the shares as a block from Talpa Beheer BV, the investment vehicle of Dutch media tycoon John de Mol.

“It was very clear they were coming into the market one way or another and we felt it was important that we own the shares,” said Warren Jenson, chief financial officer of EA.

Electronic Arts, headquartered in Redwood City, California, declined to comment on financial terms, but industry sources said the investment was in the range of $85 million to $100 million, making it one of EA’s largest such moves.

Analysts did not expect EA to stop at a 20 percent stake.

“We believe that this move by EA is a step towards acquiring the entire UbiSoft and is a potential signal that EA may be willing to take similar aggressive moves to acquire other leading video game publishers,” Wedbush Morgan Securities analyst Michael Pachter said in a note.

EA’s investment secures it access to 18.4 percent of the voting rights, against 22.8 percent held by Ubi Soft’s founders, the Guillemot family, Ubi Soft said.

“We don’t expect to be treated any different than any other shareholder,” Jenson said. “This management team we expect would continue to run this company.”

'Hostile' move
But Ubi Soft, Europe’s third-biggest independent video game publisher and maker of the recent hit game “Prince of Persia,” said it would consider Electronic Arts’ stake building as “hostile” until it received further details from the company.

“Pending further information, we consider this operation as hostile,” an Ubi Soft spokesman said.

“We think this operation is aimed at securing the studios of Ubi Soft that are ready to face the next generation of gaming consoles,” he added.

While Ubi Soft was not considered within the industry to be up for sale, EA said its acquisition of de Mol’s stake protected its interests if that did come to pass.

“Let’s say that at some point Ubi Soft were interested in merging with someone. This block of shares would be important in that context,” Jenson said.

The news propelled Ubi Soft shares to 21.10 euros at 1620 GMT, up 24 percent on the day, having reached 21.18 euros earlier. Domestic rival Infogrames was up 4.3 percent. Shares in EA were up 1.5 percent at $60.57 in late-morning trade on Nasdaq, near all-time highs reached last week. The stock is up nearly 25 percent this month.

Attractive asset
With a float of 69 percent, 2003-04 fiscal year sales of 508 million euros ($680.1 million) split between Europe and North America, and a portfolio of over 1,000 titles including a variety of hit “Tom Clancy” franchises like “Splinter Cell,” Ubi Soft is an attractive target, analysts say.

It has development studios in Canada, China, France and Texas and over 2,350 collaborators worldwide.

EA, on the other hand, dominates the industry. It generates more revenue in the holiday season than its closest competitors do in an entire year.

With a market capitalization of $18 billion, sales of $2.9 billion and cash of $2.5 billion, EA, analysts say, can easily afford Ubi Soft, which has a market cap of 300 million euros.

Several said the news had taken them by surprise given that Ubi Soft had clearly positioned itself more as a predator than as prey.

Its Chief Executive Yves Guillemot told an analysts’ meeting in June the company was eyeing the No. 1 spot in Europe currently held by Infogrames, and had left the door open to acquisitions.

Ubi Soft shares came under pressure this summer amid fears it might be dragged into a costly battle for control of British rival Eidos, which has put itself up for sale.