Ubisoft shares tumble as Tencent deal seen dampening buyout prospects

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PARIS (Reuters) -Shares in Ubisoft Entertainment tumbled on Wednesday after it announced a deal that sees China’s Tencent Holdings (OTC:TCEHY) raise its stake in the company, a move which analysts say dampens the prospect of a full sale of the French game maker.

The deal with Tencent Holdings values the maker of “Assassin’s Creed” and “Tom Clancy’s” video game franchises, at $10 billion, or around 80 euros per share, well above Tuesday’s stock price closing level of 43.5 euros.

It makes Tencent Ubisoft’s single biggest shareholder with an overall stake of 11%, which can be further increased to as much as 17%.

The deal, which comes hot on the heels of the acquisition by NetEase (NASDAQ:NTES) of unlisted French video games maker Quantic Dream, highlights a wave of consolidation in the sector, with tech giants snapping up independent players.

It also caps a difficult four-year period at Ubisoft, marked by a succession of delays of new video games and allegations of sexual harassment that led to a revamp of its top management.

Ubisoft has long been seen as a takeover target, although the founding Guillemot family managed to beat off a raid by media group Vivendi (OTC:VIVHY) in 2015.

Traders and analysts said the Tencent deal was positive for the French company but removed the speculative appeal of Ubisoft shares.

“The prospects of a takeover and a fight for Ubisoft are gone as Tencent is now really (there),” said MidCap’s analyst Charles-Louis Planade.

A London trader said Ubisoft shares were down on “disappointment that it may not be a takeover target as Tencent has increased (its) stake.”

The transaction makes Tencent part of a shareholder pact with the Guillemot family. The deal involves Tencent’s acquisition of 49.9% of Guillemot Brothers Limited – the holding company that owns the bulk of family’s 15% stake in Ubisoft – with just 5% voting rights.

Tencent’s investment in Guillemot Brothers amounts to 300 million euros, Ubisoft said in a satement on Tuesday evening.

Tencent will not be able to sell its shares for five years, beyond which the Guillemot family will have a pre-emptive right to buy the shares. Ubisoft also said Tencent pledged not to increase its direct stake in the French games maker beyond 9.99% for a period of eight years.

(writing by Silvia Aloisi; editing by Richard Lough and Angus MacSwan)