Tencent and Guillemot Family Explore Ubisoft Buyout Amid Plunging Shares

Tencent Holdings Ltd. and the founding Guillemot family of Ubisoft Entertainment SA are considering options, including a potential buyout of the French video game developer, as the company's stock has lost more than half its market value this year, according to people familiar with the matter.

Stabilizing Ubisoft's Value Through Strategic Partnerships

Exploring Buyout and Privatization Options

The Chinese tech giant and the Guillemot Brothers Ltd. have been in discussions with advisers to explore ways to stabilize Ubisoft and bolster its value. One of the possibilities being considered is a joint effort to take the company private, the people said, requesting anonymity to discuss a private matter.Ubisoft's shares have plummeted by around 40% this year, leaving the company with a market capitalization of approximately €1.8 billion ($2 billion). Tencent currently owns 9.2% of Ubisoft's net voting rights, while the Guillemot family holds about 20.5%, according to the company's latest annual report.

Pressure from Minority Shareholders

Some minority shareholders, including AJ Investments, have been pushing for either a take-private transaction or a sale of Ubisoft to a strategic investor amid the stock price decline. The considerations are still in the early stages, and there is no certainty that they will lead to a transaction. Tencent and the Guillemot family are also exploring other alternatives, the people said.

Tencent's Strategic Partnership with Guillemot Family

Last year, the Guillemot family partnered with Tencent, which acquired a 49.9% stake in the Guillemot Brothers holding company, in addition to its direct stake in Ubisoft. This deal was seen as a way for the Guillemot brothers to maintain control over Ubisoft's governance, with Tencent's stake capped below 10% and without any operational veto rights. The agreement also includes a five-year lock-up period, after which the Guillemot family has the right of first refusal on Tencent's shares.

Challenges Faced by Ubisoft

Ubisoft has struggled to recover from the pandemic-era production crunch that resulted in delays in the release of new games and the cancellation of titles. Last month, the company's shares fell to their lowest level in more than a decade after it cut its outlook due to weaker-than-expected sales and a delay in the highly anticipated Assassin's Creed Shadows title.

Potential Suitors and Industry Consolidation

In 2022, several private equity firms, including Blackstone Inc. and KKR & Co., were reportedly studying potential bids for Ubisoft amid a flurry of large deals in the video game industry. The Guillemot family's partnership with Tencent was seen as a way to fend off potential suitors and maintain control over the company's governance.The video game industry has been experiencing a wave of consolidation, with major acquisitions and mergers taking place, such as Microsoft's proposed $68.7 billion acquisition of Activision Blizzard. This industry-wide trend has likely contributed to the Guillemot family and Tencent's considerations regarding Ubisoft's future.