UPDATE 1-Game maker Ubisoft soars as bidding war looms
Wed Jan 5, 2005 05:42 AM ET
(Recasts with share price gains, analysts comments, background throughout)
By Dominique Vidalon
PARIS, Jan 5 (Reuters) - Shares in Ubisoft (UBIP.PA: Quote, Profile, Research) soared nearly 10 percent on Wednesday after a report that Vivendi Universal might help the French video games maker fight a possible takeover bid from U.S. giant Electronic Arts (ERTS.O: Quote, Profile, Research) .
French newspaper L'Agefi, citing a source close to the matter, said that Vivendi (EAUG.PA: Quote, Profile, Research) and Ubisoft had held preliminary talks on the issue.
A merger between Vivendi Universal Games and Ubisoft would create the largest video games group in Europe, with sales of more than 1 billion euros ($1.33 billion), although it would still be dwarfed by Electronic Arts.
Analysts said the tie-up would be encouraged by the French government which would be concerned about seeing French games technology fall in foreign hands.
Vivendi declined to comment while Ubisoft, Europe's third-largest independent video game publisher, had no immediate comment.
However, analysts said Vivendi would make a credible white knight and could pave the way to a bidding war.
"If the Vivendi scenario takes place then this could speed up things and force Electronic Arts to declare its intentions," said analyst Jean-Michel Salvador at Fideuram Wargny.
At 0906 GMT, Ubisoft shares gained 9.27 percent at 27.10 euros, outperforming domestic rival Infogrames (IFOE.PA: Quote, Profile, Research) .
Some analysts now estimate that based on the French firm's current share price, Electronic Arts (EA) needs to offer at least 30 euros per share if it bids for Ubisoft.
Ubisoft shares have gained over 60 percent since EA, the world's largest video games maker, bought almost 20 percent of Ubisoft on Dec. 20. The purchase fuelled speculation that EA could soon launch a full bid for the company.
Ubisoft is an attractive target, analysts said, given a free float of nearly 70 percent, 2003/04 fiscal year sales of 508 million euros split between Europe and North America, and a portfolio of more 1,000 titles including a variety of Tom Clancy hit franchises like "Splinter Cell."
THE FRENCH TOUCH
Ubisoft, which has said it considered EA's move hostile until it got more information from EA, is said to be already working on a defence.
Bruno Bonnel, Chief Executive of Infogrames (IFOE.PA: Quote, Profile, Research) , told Reuters in a phone interview on Tuesday that Europe's largest video games maker could be ready to play a role in Ubisoft's defence to help prevent a U.S. company from increasing its position in Europe.
"It's the theme of the so-called French touch ending in U.S. hands," one analyst said.
But analysts and traders say cash-strapped Infogrames was not well placed to help Ubisoft fend off a bid from EA.
On the other hand, analysts said Vivendi Universal, which has sharply reduced its debts, would have enough cash to fund a friendly bid.
"People think that Vivendi could afford to buy Ubisoft and that there would be an industrial logic to it," one Paris-based trader said.
Vivendi has tried in vain to sell its loss-making Vivendi Universal Games in recent years.
Vivendi's games business had an operating loss of 185 million euros on sales of 211 million for the first nine months of 2004. It notably owns the Blizzard Entertainment studio, whose hits include the Warcraft strategy game, which would be a good fit in Ubisoft's action games portfolio.
Ubisoft founders, the Guillemot brothers, together own 17.5 percent of the company and 22.8 percent of its voting rights, while EA now controls 18.4 percent of the voting rights.
But with a market capitalization of $18 billion, sales of $2.9 billion and cash of $2.5 billion, EA could easily afford Ubisoft, which has a market value of about 375 million euros, analysts said. (Additional reporting by Marie Maitre in Paris)
