The Mad Draklor
Member
Funniest part was how enthusiastic some people were about the stock price rising last week and then, it turned out to be a pump-and-dump.
The stock of Ubisoft is now being obliterated, dropped almost 18% today.
Ubisoft Carves Out Top Games Unit - Valuation of €4 bln, Tencent to get 25% stake, manages 3 big IPs (Assassin's Creed, Far Cry and Rainbow Six)
Zacfoldor
Member
Tencent shoulda read our posts. We've been warning that the AC Shadows "success" touting has had a waft of bullshit since "players" were the metric without context.This initiative seems to have been agreed on a few months back when there were official discussions of merger and acquisition between Ubisoft and Tencent. Here's an excerpt from October of last year:
But then it appeared that talks were on hold due to disagreement on the value of the newly formed subsidiary.
So naturally Ubisoft delayed ACS's release date to release the game in the best possible state and pushed to maximize the game's early financial performance in order to negotiate a better deal and extract more value in their IPs with Tencent, which I believe they were mostly successful on as they have been touting every new milestone that AC: Shadows has reached in a short period of time.
1. "More revenue than X" or "X number of players" is not "copies sold" which is a metric being hidden
2. Without knowing internal expectations, knowing the sales wouldn't even help us
This modern woke game made in a large city, like Spider-Man 2, likely had a huge production cost. Ubisoft probably ostensibly "expected" the IP to increase in popularity to make up for those increased costs. People getting hyped up on here based on sales data have nothing to compare that data against without knowing internal expectations. Winning the week or doing as well as the last AC game are not relevant metrics.
I don't think everyone fully appreciates how big of a deal this is. Imagine if Nintendo did this to Mario and Zelda and you are starting to get a better idea of Ubisoft's position here.
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Topher
Identifies as young
People were enthusiastic when it dropped, when it rose, when it dropped again. Fact of the matter is none of it has very much to do with AC: Shadows.
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PeteBull
Member
Yup, it reminded me shreier's tweet on x praising da:v sales numbers only to delete it soon after
Hell, he even doubled down on it:
In the end despite his best efforts
Angry_Megalodon
Member
This is so obvious that it amazes me that anyone would think this won't happen in the coming months, turning out in thousands of layoffs. It's the sole reason for Tencent to invest money, what else?
Patrice Desilets, a Canadian dude who modernized PoP and then led the transition from that to Assassins Creed. A visionary, the kind of dude Western companies are kicking out and replacing with talentless drones.
GHG
Gold Member
Topher
Identifies as young
Desilets? Ok....I know who he is. Looked up the dispute between the two. Definitely sounds like the guy got a raw deal from Ubisoft there.
GHG
Gold Member
Because shareholders are no longer exposed to all the potential spoils.
It's not just insider shareholders, it's all shareholders that now get a rough deal while Tencent get exposure to 25% of everything at a minimum.
What usually happens when subsidiaries for publicly listed companies are spun off like this is that they create a new entity that current shareholders also get exposure to. Example:
So in this case it would read as follows:
Ubisoft shareholders would receive stock representing 75% of the new company; Tencent shareholders would own 25% of the new company.
But Ubisoft clearly took the quick and dirty route here, which would suggest there was a great deal of urgency in terms of getting the money in to cover debt liabilities.
The end result - Ubisoft's stock will end up doing all the corrections itself as investors realise they've got the short end of the stick. Oh, and Ubisoft will have to deal with a barrage of shareholder class action lawsuits that will inevitably come their way.
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GHG
Gold Member
No, it has:
Ubisoft announces the creation of a new subsidiary
UBISOFT ACCELERATES ITS TRANSFORMATION BY LAYING FOUNDATION FOR NEW OPERATING MODEL WITH THE CREATION OF A SUBSIDIARY AND INJECTION OF €1.16BN OF CASH FROM...
Deal was completed on the 27th.
Topher
Identifies as young
No, it has:
Ubisoft announces the creation of a new subsidiary
UBISOFT ACCELERATES ITS TRANSFORMATION BY LAYING FOUNDATION FOR NEW OPERATING MODEL WITH THE CREATION OF A SUBSIDIARY AND INJECTION OF €1.16BN OF CASH FROM...www.globenewswire.com
Deal was completed on the 27th.
Ok....maybe I'm not understanding the terminology. When a company is "spun off" doesn't that mean they become bully independent? A subsidiary is still wholly owned by the parent corporation, right?
I'm not debating here. I'm just trying to understand.
viveks86
Member
Spin off just means it was registered as a separate entity. Ownership is a separate question altogether. Could be independent, partially owned or fully owned. A subsidiary means it is partially or fully owned by the parent.
So in this case, it means it is not fully independent
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In the first instance because Ubisoft shares now (assuming this plan goes through) represent 75% of the good part of the company and 100% of the bad part of the company, compared to before where before they represented 100% of each. That bad part is however somewhat less bad if the Tencent money is used to pay down debt.
I imagine the greater fear is that restructuring the company into a good part (Newbisoft) and a bad part (Ubisoft) may not bode well for the long term future of the bad part. If the bad part goes bust, the employees' Ubisoft shares will be worth ~nothing.
yurinka
Member
All the workers / shareholders will get benefited of the company getting over 1B that pretty likely will be used to reduce debt.
And nothing spun off, it's a subsidiary of Ubisoft controlled by Ubisoft.
Or the shareholders may get happy to see that this move may help them get rid of most of the debt without having to sell any asset, but instead by correctly valuate them and allowing to get extra investment without selling the company or losing control over it. And may ask to do the same grouping other assets in other subsidiaries to get additional extra minority investment there, in order to further improve more their finances/debt.
The ones who must be pissed off are the trolls who artificially undervaluated the company.
Ubisoft shares represent the 100% of Ubisoft, which includes 100% of this subsidiary.
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viveks86
Member
It is still a spin off though? You can spin off to create subsidiaries as well. Siemens did this recently with Siemens Healthineers (random example, but something that came to mind in my line of work)
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GHG
Gold Member
Not always, the parent company/companies will often still have complete oversight of the newly formed entity because they will decide upon the board during it's formation.
What they've done here is everything but put an official board of directors in place (along with doing everything that would be necessary to get the new company floated in a way that would enable current Ubisoft shareholders fair ownership). They have been clear in stipulating the following:
And:
Ownership is split is as follows:
75% by Ubisoft, 25% by Tencent.
They've done this the quick and dirty way. It would take months to do this in a way that would enable current shareholders full and transparent exposure to the subsidiary.
----
Also, something I've seen throughout this thread (not directed at you specifically
Topher
) - people need to understand the fact that Ubisoft stating they will "control" the new subsidiary does not mean what you think it does. When it comes to subsidiaries a company can state they "control" it provided they own more than 50% of it. It reads like some people are mistaking Ubisoft stating they control it for meaning they have whole ownership of it (which would mean 100%, no questions asked). The whole reason they are doing this is right there in black and white:
- Tencent would invest in the new subsidiary which is headquartered in France and 100% owned by Ubisoft immediately prior to the transaction. Specifically, at closing of the transaction, Tencent would invest a total amount of EUR1.16bn for an approximate 25% economic interest in the New subsidiary, that will be used to strengthen Ubisoft’s balance sheet by significantly reducing its consolidated net debt position, accelerate the Group’s transformation, and sustain growth of selected franchises. After closing of the transaction, the new subsidiary would remain exclusively controlled and consolidated by Ubisoft.
Tencent have effectively bailed out Ubisoft in exchange for 25% of all of the IP that will be controlled by this new subsidiary.
The subsidiary (aka the good part of the company) being valued more highly than the company as a whole doesn't tell us that the valuation of the company as a whole is wrong. It probably tells us that the bad part effectively has a negative value, which is probably true for many companies if you split them into a good part and a bad part.
GHG
Gold Member
Read my post above.
It might benefit the employees in the short term by keeping the lights on, but the shareholders are getting screwed here.
Same again, specifically the latter half of the post. You're not correctly understanding the terminology in play.
Nothing about this company is "artificially" undervalued. They cannot afford to pay their quarterly liabilities without outside help:
The only time you want to see levered free cash flow in the negative like that is if a company is margin positive and are neglecting paying their debt in order to achieve bombastic revenue growth and margin expansion.
In Ubisoft's case their margins have shrunk such a degree that they are now negative, and their revenues are shrinking:
All of that is disastrous, and paints a picture of a business in deep trouble.
Let me be clear - they have not been avoiding paying their debt because they don't want to, they have been avoiding paying it because they can't pay it.
And to make matters worse, if you look at the amount of debt they have been taking on in recent years, it's only been accelerating. They are taking on new credit to pay off existing credit.
100% of their 75% in the subsidiary. What about that last 25% which Tencent have ownership of?
Pretty much all of their current major money making IP's are being thrown in to that subsidiary. I will do some digging at some point and figure out rough estimates for what percentage of their current revenue comes from the combination of Assassin's creed, far cry and rainbow six, but it's likely to be well over 50%.
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What do you think Tencent gave Ubisoft $1.2bn for?
Sabejita
Member
yurinka
Member
Tencent invested 1.16B€ for the 25% of a subsidiary. This doesn't give Tencent control over it, it only gives them pretty likely a small portion of its profits. And allow them to sell that 25% to somebody else (as could be Ubisoft, the Guillemots or somebody else) several years in the future, hopefully at a higher price if they increast the value of that subsidiary.
Tencent did it because helps Ubisoft not only for that subsidiary, but the whole Ubisoft (only 10% of it owned by Tencent, they did help the Guillemots to get control over it to don't depend on the stock market). Tencent has more money invested in the whole Ubisoft than in this subsidiary.
All these 3 movements show that Tencent has long term confidence on the Guillemots managing the company, and also think Ubisoft is highly undervaluated.
Seems you don't understand what subsidiary means. Ubisoft continues controlling it because it's part of it, they continue working for Ubisoft, even if somebody else has a minority stake on the subsidiary. In this case of Ubi owning 75% and Tencent 25% means Ubi continues crontrolling everything. It doesn't mean that Tencent bought one of the 3 IPs or something like that.
For the whole company, if the Guillemots have 17.3%, Tencent 10% (who support the Guillemots), the company itself and its workers (who support the Guillemots) lets say have another 10%, plus banks and investors etc that support the Guillemots another let's say 14%. In that case (made out percents), the Guillemots would control the majority of the company, so they control the full company. They don't only control 17.3% the company, they control the whole company. And same goes with the stocks, if you buy Ubisoft stocks, these are stocks of the whole company, even if the company itself only has 5% of the total stocks.
Depending on the company, its yearly performance, the type of stocks etc, stock holders get dividends. And if you buy stocks, you may sell them in the future hopefully at a higher value if you're lucky with the lottery, getting a profit from it. This is what an investor gets.
P.S.: Ubisoft mentioned a few years ago, in a slow year without big releases, that each one of these IPs generated over 300M€/year. Meaning, they combined generate minimum a billion per year. So yes, almost half of the Ubisoft revenue (42% that year, including catalog titles) comes from these 3 IPs. https://www.gamedeveloper.com/busin...ly-earned-300-million-in-net-bookings-in-2021
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Yes, exactly...
It gives them 25% of its profits... hence why there is only 75% left for the Ubisoft share...
Yes except 'the whole company' now gets only 75% of the profit from everything in the subsidiary where before this change it got 100%. The upside is it gains the $1.2bn in cash.
yurinka
Member
No, in France companies as one of their taxes have to pay 25% of their profits. Then they are also forced to pay part of the profits to the workers of the company. And other than that, with what is left after this and other things, companies decide if and how they give a portion of their remaining profits as dividends among their stock holders.
And well, in this case this subsidiary will pay Ubisoft an unspecified royalty. That royalty could be the totality of its profits or something like that to creatively find a legal way to pay less taxes, or something like that.
I assume Tencent will get some dividend for its profits, but who knows its amount.
As they explained, they had this bad quarter because had important delays (mainly AC Shadows), some cancellation and restructuring. They got more debt because knew that in the next quarter AC Shadows was going to release making a lot of money and they were going to start showing the new strategy to get more value from their assets (as we saw they grouped some assets under a privately handled subsidiary and got specific investment for a minority stake on it, something they may continue doing with other parts of the company in the near future).Nothing about this company is "artificially" undervalued. They cannot afford to pay their quarterly liabilities without outside help:
The only time you want to see levered free cash flow in the negative like that is if a company is margin positive and are neglecting paying their debt in order to achieve bombastic revenue growth and margin expansion.
In Ubisoft's case their margins have shrunk such a degree that they are now negative, and their revenues are shrinking:
All of that is disastrous, and paints a picture of a business in deep trouble.
Let me be clear - they have not been avoiding paying their debt because they don't want to, they have been avoiding paying it because they can't pay it.
I have no insider knowledge of their current plan, but I think it's this one or something similar:
As they get money from (won't have it tomorrow) the AC Shadows (plus future games to be released soonish) and these additional investments they'll pretty likely greatly reduce the debt, maybe getting rid of it (or most of it to be exact) in the mid term, 2-3 years.
As the stocks keep getting lower, pretty likely the Guillemots, Ubisoft, workers and allies (including Tencent) will buy back stocks aiming to get all, or almost, at least to have a bigger control depending less on external allies.
Then by doing that and creating maybe a few additional subsidiaries with again a higher valuation each than the whole company and getting some extra investor on board (as could be Sony next year once they get the money from selling their banks stuff, but also any of the usual suspects), they'll show the real valuation of the company is way higher.
I think one of the subsidiaries may be created to be completely sold to somebody like maybe MS, and maybe (doubt it) include several unused IPs that they don't plan to use anymore plus maybe some unprofitable studio whose alternative would be to shut it down.
I assume they'll keep doing this with the plan of in the mid term, maybe 2-3 years from now, have full control of the company, having kep the debt in a small and very manageable size, having considerably improved their profitability after a few years of slowly cutting the fat, and then will make the company private.
Another option would be selling all these subsidiaries that will have basically all Ubisoft assets to Huvisotf, a new private company managed by the Guillemots, with Tencent now having a bigger percent, maybe now owning aprox 25% of the company, with the Guillemots+workers+Huvisoft owning around 55% aprox of the stocks and then people like Sony, MS, maybe Savvy owning like 20% combined.
I think that 'Huvisotf' private company would be valued in maybe around 8-10 billions.
P.S.: "Current Ratio (most recent quarter)" of 2.32 means it has healthy short-term financial strength to pay its short term payments, even if their Total Debt/Equity (most recent quarter) is over 100% and Levered Free Cash Flow (mrq) is negative, which would indicate the company needs an important profit bump (as of the release of a big ass AC) or additional investment (what we just saw). Knowing its context, the balance sheets of the next quarters to be posted will look way prettier.
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All of this and anything similar presumably applies to the entire subsidiary, not uniquely to Tencent's part of the subsidiary. Tencent's 25% remains 25% whatever stage of the process you look at.
It's true the royalty is an unknown factor. Is it likely Tencent paid $1.2bn for a 25% share of the subsidiary and one of the conditions is the subsidiary has to give the totality of its profits to Ubisoft as a royalty? No. That would amount to Tencent giving Ubisoft $1.2bn for nothing.
Again, the subsidiary/s nominally having a higher valuation than the whole does not show that the 'real valuation of the company is way higher'.
yurinka
Member
They didn't do it for nothing, it's an additional investment on part of a company where they already invested way more money and that needed to get cash injected now without growing the debt more due to the AC Shadows (and others) delay.
This move also certified the increase of the valuation of the assets of that portion of the company where they did the additional investment. Which also means that if now comes other investor like MS, Sony, etc interested on investing due to that portion of the company, will pay a higher price for it than would have done before. Meaning, if Ubi or Tencent sells to them a portion of what they have they'll make more money than before having created the subsidiary than just getting stocks from the stock market.
As usual in an investor, they invested in a company and later found out a way of increasing the value of their assets, something they pretty likely will continue doing.
It clearly shows that when properly valuated, just a portion of the company has a value way higher than the entire company valuation in the stock market. So it clearly highlights that the Ubisoft value on the stock market is highly undervaluated.
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viveks86
Member
Internal memo leaked:
https://insider-gaming.com/ubisofts-plan-for-the-ubisoft-tencent-subsidiary-detailed/
https://insider-gaming.com/ubisofts-plan-for-the-ubisoft-tencent-subsidiary-detailed/
I think it highlights that the remaining part of Ubisoft is a total disaster, to the extent it is dragging down the overall value of both parts combined.
Ubisoft owns (or will own if this all goes through) $3bn worth of subsidiary (75% of the alleged $4bn subsidiary valuation) and is still only considered by the market to be worth $1.5bn itself. By my reckoning that says the remainder of Ubisoft (ie. excluding its stake in the subsidiary) is considered to be worth minus $1.5bn. If it's holding all the debt and employees they can't get rid of, that's probably true.
Felessan
Member
This is completely incorrect
What market thinks about valuation is one thing and what Tencent in a block trade thinks about valuation is another thing.
It's not the same thinking and not the same valuation. Big guys can have completely different reasons and valuation from retail investors trading on public exchange. Shouldn't be mixed together.
Same as MS thought that ATVI has a value of x1.5 market cap when it offered buyout.
Ok, let's add a 50% premium, which probably nobody is going to pay for Ubisoft because it's a total disaster and anything remotely good about it has just been moved into the subsidiary. The remainder (excluding the share of the subsidiary) now has a value of minus $0.75bn.
yurinka
Member
Yep.
It's also worth mentioning that the ABK acquisition, agreed in literally 3 days, miracously ended the shitstorm that ABK had in gaming media and courts that made their market value tank. As if it was part of a campaign to lower its market valuation to force them to want to sell, and to later buy them at a cheaper price. But Kotick obviously made sure the valuation was the correct one, not the one caused by these controversies they had back then (later won in the court btw).
In addition to this, in the past Ubisoft rejected multiple times undesired acquisition attempts from powerful people. Some of which might be pushing to artifially take down their market valuation to ease an acquisition of the company or part of their assets.