UBISOFT... Deal Reporter
Ubisoft: Upcoming expiry of Vivendi standstill agreement could provide further impetus for deal
20 May 2022 | 08:35 EDT
Share price performance, recent sector activity main catalysts
Ubisoft still testing appetite for take-private
EUR 60-70 minimum acceptable offer price range – minority shareholders
The expiry of a standstill agreement between Ubisoft [EPA:UBI] and Vivendi [EPA:VIV] next year, under which the media conglomerate has committed to refrain from purchasing Ubisoft shares, could provide further impetus for a take private of the French video game developer, shareholders and advisers said.
Vincent Bollore’s Vivendi in 2018 sold its remaining 27.7% holding in Guillemot family-backed Ubisoft for EUR 2bn and agreed to refrain from purchasing Ubisoft shares for five years. The agreement, which expires in March 2023, put an end to a takeover battle for the French gaming company, in which Vivendi had built its stake since 2015.
Ubisoft’s founding family is currently assessing a partnership with a private equity group, this publication reported, with KKR [NYSE:KKR] and Blackstone [NYSE:BX] believed to be among potential suitors assessing the business.
The upcoming expiry of this agreement may have added further incentive for the Guillemot family to drive a take private deal forward on their own terms, two minority shareholders in Ubisoft said.
Potential investors and Ubisoft management have the standstill agreement deadline in mind, and it is an additional factor pushing for a deal this year, two advisers following the situation agreed.
However, the decline of Ubisoft's share price over the past few years amidst governance issues and the recent deals in the space - including the USD 74bn acquisition of Activision Blizzard [NASDAQ:ATVI] by Microsoft [NYSE:MSFT] - are the main catalysts pushing for a deal, the advisers said.
"Ubisoft is currently trading at a substantial discount to fair value and the timing of this potential transaction to take Ubisoft private is interesting for many reasons but also as the standstill agreement with Vivendi is drawing to a close and Ubisoft will want to avoid Vivendi coming back to buy shares," said Jonas Edholm, portfolio manager of SKAGEN Focus - a contrarian and value-based global equity fund that holds a 3.4% stake in Ubisoft
The French videogames specialist's shares, which stood at a peak of EUR 102 in July 2018, were trading today (20 May) at EUR 47.60, giving it a market capitalisation of EUR 5.96bn.
Ubisoft’s Chairman and CEO, Yves Guillemot, founded the business with his brothers in 1986. The Guillemot family, together with its affiliates, own 15.9% of Ubisoft’s shares and 22.3% of the net voting shares in the company, as per its latest annual report.
Ubisoft is still testing market appetite and listening to pitches while potential interested parties run the numbers on a potential take-private deal, three sources familiar with the situation said. The founding family is likely to resist strategic bidders, they reiterated.
Should a deal materialise, both shareholders highlighted EUR 60 to EUR 70 as the minimum price offer range that would be considered acceptable, and that could convince minority investors to cash out. However, EUR 100 per share is seen as the more favourable price based on its long-term prospects, they said.
“Ubisoft stock is deeply undervalued on any metric”, Edholm said. “The share price has dropped from EUR 100 over the last four years and the stock is now at an inflection point, where the company will be able to launch an impressive line-up of products and reaping the benefits from an elevated investment cycle.”
Ubisoft is a business that owns its intellectual property and franchises and is an attractive target, with much of its heavy R&D investment set to pay off in the coming years, the second shareholder agreed.
Despite the Guillemot’s preference for a private equity deal, Vivendi is in a good position to bid for the asset when the March 2023 deadline passes, the second shareholder said.
“Vivendi has the financial resources to go after something and Ubisoft is an obvious target. The Bollore Group have the optionality to sell down shares in UMB and recently sold its African logistics business for USD 6.4bn so they have a flexible balance sheet,” this shareholder noted.
A Ubisoft spokesperson declined to comment on market rumours. A Vivendi spokesperson noted that the standstill agreement is still in force and declined to further comment on market rumours.