Ubisoft Shares Surge Amid Buyout Talks

Shares of Ubisoft Entertainment SA (LON:0NVL) (EPA:UBIP) jumped 16% on Friday as discussions for a potential buyout involve the Guillemot family, the company's founding group and largest shareholder. They aim to structure a buyout that preserves their control over the renowned French video game developer, known for hits like Assassin's Creed and Far Cry.

The Guillemot family is in negotiations with Tencent Holdings Ltd (F:NNND) (HKG:0700), a significant shareholder and China's leading social network and gaming company, to secure financing for a management-led buyout. They wish to maintain their level of control over Ubisoft, which also develops the Just Dance and Tom Clancy’s video game series.

Tencent, holding the second-largest share in Ubisoft, is considering joining the buyout and potentially increasing its stake. The Chinese firm wants more influence in board decisions, particularly regarding cash flow, a condition for financing. However, no agreement has been reached with the Guillemot family on this point.

These negotiations are a strategic move by Tencent to avert a potential hostile takeover from other entities. While Tencent is contemplating its options, it may not wish to elevate its stake in Ubisoft, suggesting its near-10% holding is sufficient for collaboration in the gaming sector.

A Ubisoft representative reiterated the company's commitment to its stakeholders and mentioned that it is evaluating all strategic opportunities. This comes after a previous acknowledgment that the company routinely assesses strategic alternatives, though it declined to comment on specific buyout interests.

This potential buyout dialogue is propelled by growing pressure from minority shareholders, such as AJ Investments, advocating for a private takeover or sale to a strategic investor due to Ubisoft's falling stock price. The company suffered a decade-low share price in September, following reduced sales forecasts and delays in the release of Assassin’s Creed Shadows.

Recently, Ubisoft also announced the cancellation of its XDefiant game, leading to the closure of production studios in San Francisco and Osaka, along with scaling down operations in Sydney.

The Guillemot family holds 15% ownership in Ubisoft, while Tencent possesses just under 10%. As reported in Ubisoft's latest annual report, the family had around 20.5% net voting rights as of the end of April, with Tencent holding 9.2%.

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