Interest in the creator of the ‘Assassin’s Creed’ and ‘Tom Clancy’s’ franchises comes as the world’s biggest games company by revenue counters slows growth at home with purchases including 16.25% of the Japanese developer FromSoftware’s “Elden Ring” announced just a week ago – the same time domestic rival NetEase Inc said it would buy French game maker Quantic Dream.
The latest Tencent deal also caps a difficult four-year period at Ubisoft, where there were a succession of new game delays and sexual harassment allegations that led to a senior management overhaul. The company’s share price fell from around 100 euros to less than 44 euros on Tuesday.
“Tencent is a key shareholder for many industry leaders, who have created some of the most remarkable video games,” said Yves Guillemot, CEO of Ubisoft. “This transaction strengthens our ability to create strong value in the years to come.”
The transaction brings Tencent into a shareholders’ agreement with Ubisoft’s founders, the Guillemots, and gives it a total stake in the game maker of more than 11%. This pact involves the acquisition by Tencent of 49.9% of Guillemot Brothers Limited with 5% of the voting rights, Ubisoft said in a press release.
Tencent’s investment in Guillemot Brothers, which owns the bulk of the founding family’s 15% stake in Ubisoft, is 300 million euros ($296 million) at an implied valuation of 80 euros per Ubisoft shares. This values Ubisoft at more than 10 billion euros.
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China’s biggest social media and gaming company also has the right to increase its direct stake in Ubisoft to 9.99% from the current 4.5%, Ubisoft said.
Reuters reported in early August, citing people with direct knowledge of the matter, that Tencent planned to increase its stake in Ubisoft. The Chinese firm’s share price fell about 2% on Wednesday morning in Hong Kong.
Tencent will not be able to sell its shares for five years, beyond which the Guillemot family will have a right of first refusal to buy the shares, Ubisoft said. He also said Tencent had pledged not to increase its direct stake in the French game maker beyond 9.99% stake for an eight-year period.
Tencent, which bought its first 5% of Ubisoft for 66 euros per share in 2018, is also granting the Guillemot holding company a long-term loan to refinance its debt, Ubisoft said.
The structure of the deal does not appear to alter the longstanding strategic partnership between the two companies, said Matthew Kanterman, director of research at Ball Metaverse Research Partners.
“Overall, it’s a bet from Tencent that Ubisoft can improve its execution and unlock value in its intellectual property (IP) catalog, the pair can create new mobile games based on that IP, and that they can bring existing Ubisoft titles to China once the regulatory climate improves,” he said.
The deal will likely help Tencent offset pressure in its home market where the gaming regulator has not granted any new gaming licenses to Tencent since June last year, analysts said.
Overall revenue from the world’s biggest video game market fell for the first time in January-June, according to a report, as it continued to suffer from growing government surveillance.
China began scrutiny of its high-growth tech sector about two years ago, in part alarmed by what regulators have called “the disorderly expansion of capital” caused by acquisitions.
Tencent announced its first-ever quarterly revenue decline last month, partly affected by a lack of game approvals and regulations limiting playtime.