Overview of the Potential Buyout

In a significant development for the gaming industry, Tencent Holdings Ltd. and the Guillemot family, the founders of Ubisoft Entertainment SA, are reportedly contemplating a potential buyout of the beleaguered French video game developer. This comes in light of Ubisoft's staggering loss of more than 50% of its market value in 2023, as confirmed by sources familiar with the discussions.

Market Reactions and Current Shares Performance

In a market fraught with volatility, the Guillemot family and Tencent have enlisted advisers to explore options aimed at stabilizing Ubisoft and enhancing its market value. One of the major strategies on the table includes the prospect of taking the company private by joining forces.

The news sparked a remarkable reaction in the stock market, with Ubisoft shares soaring by up to 33% in Paris following the reports, marking the sharpest increase since the company's IPO in 1996. Despite this surge, the overall situation remains grim, with the company's shares down roughly 40% for the year, amounting to a market capitalization of about €1.8 billion ($2 billion).

Stakeholders Involved

Tencent owns 9.2% of Ubisoft's net voting rights, while the Guillemot family maintains around 20.5%. These two powerful entities are responding to pressure from minority shareholders, including AJ Investments, who have been advocating for either a sale to a strategic investor or a take-private bid amid the troubling decline in stock price. However, discussions are still in the preliminary stages, and there is no guarantee that these deliberations will culminate in a transaction.

Ubisoft’s Recent Challenges

In recent months, Ubisoft faced significant challenges, recording its lowest stock price in over ten years after a disappointing sales outlook and delays in highly anticipated titles, particularly the latest installment in the Assassin's Creed series. The pandemic has exacerbated these issues, leading to production delays and the cancellation of new games, leaving fans and investors worried about the company's future.

Historical Context and Interest from Private Equity