Ubisoft debt fix leaves valuation quest on pause
28/03/2025 12:12
The authors are Reuters Breakingviews columnists. The opinions expressed are their own. By Oliver Taslic and George Hay LONDON, March 28 (Reuters Breakingviews) - In “Assassin’s Creed”, a perpetual beef exists between the Assassin Brotherhood and the Templar Order. France’s Ubisoft Entertainment UBIP.PA, the smash-hit game’s creator, has found a way to fix its ailing balance sheet that should avoid any such discord between the Guillemot family and Tencent 0700.HK, its two biggest shareholders. But public-market investors seem a lot less enthusiastic about the company’s prospects than the Chinese technology giant’s investment terms imply. The Paris-listed video game developer, founded by CEO Yves Guillemot and four brothers almost 40 years ago, has had a rough time. Its market capitalisation soared above 10 billion euros ($10.1 billion) in 2021, as locked-down punters turned to video games en masse. But an industry-wide post-Covid hangover – as well as repeated game delays and underperforming titles like “Star Wars Outlaws” – have since weighed on the shares. When markets closed on Thursday, the company’s equity was worth 1.7 billion euros and it had more than 1 billion euros of net debt. Boss Guillemot said in January that he was exploring “capitalistic options” to help get things back on track. Late on Thursday, the cavalry arrived. Ubisoft announced it was forming a new subsidiary to house the blockbuster “Assassin’s Creed” franchise plus two other hit series, “Far Cry” and “Tom Clancy’s Rainbow Six”. Tencent will invest 1.2 billion euros for a roughly 25% stake in this new entity. Assuming that around 500 million euros goes to pay down debt, as per Barclays’ assumptions, it puts Ubisoft’s balance sheet on a much more secure footing, probably explaining the shares’ 10% jump on Friday morning. What’s less clear is whether Tencent is getting much value for its money. Ubisoft says the terms imply an enterprise value for the carved-out subsidiary of 4 billion euros, before factoring in the newly invested money. If so, the 75% Ubisoft is retaining would be worth 3 billion euros. Barclays analysts reckon a bullish valuation for the other titles, not included in the subsidiary, might be 600 million euros. Add those figures together, strip out the newly shrunken 500 million euros of net debt, and the implication is that Ubisoft’s market capitalisation should exceed 3 billion euros. Instead, it was trading on Friday morning at 1.8 billion euros. One explanation is that Tencent just thinks Ubisoft is worth a lot more than other non-Guillemot investors do – after all, its previous share acquisitions have also been done at what seemed like generous levels. A simpler explanation is that current political realities make it tricky for a giant Chinese group to take a majority stake in a high-profile European one, and the Guillemots probably didn’t relish tangible dilution. Exactly what Ubisoft should be worth may prove as interminable as the back and forth between the Assassins and the Templars. Follow @Breakingviews on X CONTEXT NEWS French video game maker Ubisoft Entertainment announced on March 27 that it was forming a new subsidiary to house its popular “Assassin’s Creed”, “Far Cry” and “Tom Clancy’s Rainbow Six” franchises. The company said that Chinese technology giant Tencent will invest 1.2 billion euros ($1.25 billion) into the new entity in exchange for a roughly 25% stake. Ubisoft will own the remainder. The French firm said it would use part of the money raised to pay down its debt. Tencent already owns around 10% of Ubisoft. Ubisoft said the transaction valued the new entity at a pre-money enterprise value of around 4 billion euros. It said that implied an enterprise value to sales multiple of about 4 times. Ubisoft’s market capitalisation, using March 27 closing prices, was around 1.7 billion euros. Its shares were up 9.5% at 0955 GMT on March 28. It said it expected the transaction to close before the end of 2025. Ubisoft shares have underperformed video game peers https://reut.rs/4j7DAbV (Editing by Liam Proud and Streisand Neto) ((For previous columns by the authors, Reuters customers can click on TASLIC/ and HAY/ oliver.taslic@thomsonreuters.com george.hay@thomsonreuters.com))