By Scott Kanowsky
Investing.com -- Shares in Ubisoft Entertainment (EPA:UBIP) dipped sharply on Wednesday after China's Tencent Holdings Ltd (HK:0700) agreed to raise its stake in the video game maker through a deal that values the French company at more than €10B.
The transaction will see Tencent enter into a shareholder pact with Guillemot Brothers Limited, the shareholding vehicle for Ubisoft's founders. The tech giant will acquire a 49.9% stake in Guillemot Brothers Limited for €300M along with 5% voting rights, although it will not be represented on its board.
Tencent will also have the option to increase its holdings in Ubisoft to 9.99% from 4.5%, but will be unable to sell its shares in the creator of big-name titles like Assassin's Creed and Watch Dogs for five years. It is blocked from further raising its stake for eight years, as well.
The move carries an implied valuation for Ubisoft of €80 per share, well above the company's closing share price on Tuesday of €43.50. That would mean the company is valued at over €10B.
In addition, Tencent will give Guillemot Brothers Limited a long-term unsecured loan to help it refinance its debt and boost finances that could be used to buy further Ubisoft shares.
“The expansion of the concert with Tencent further reinforces Ubisoft’s core shareholding around its founders and provides the company with the stability essential for its long-term development.” said Ubisoft Chief Executive Officer and co-founder Yves Guillemot in a statement.
Meanwhile, Tencent president Martin Lau said the firm was "excited" to bring Ubisoft's top franchises to the lucrative mobile gaming market. Hong Kong-listed shares in Tencent declined slightly on Wednesday.
The move comes amid a series of large-scale acquisitions in the video game industry after the pandemic drove a surge in customer demand. Tech and entertainment firms have sought to harness this growth, with many pursuing brands that frequently churn out mega-popular titles.
Chinese gaming companies have been particularly keen to snap up foreign studios. Tencent has put together a large portfolio that spans the U.S., Asia, and Europe, while rival NetEase (NASDAQ:NTES) bought unlisted French gaming company Quantic Dream last week.
As one of the few remaining big independent video game makers, Ubisoft has also reportedly become a target for a possible takeover. The group's recent performance has been marred by delayed releases and sexual harassment allegations that have led to an overhaul of its executive leadership.
However, analysts at Cowen said the agreement between Tencent and Guillemot Brothers Limited means that a full sale of Ubisoft to a strategic or financial buyer is now unlikely. They added that while the deal should be seen as a net negative for Ubisoft shares, it is not for the company itself.