The Assassin’s Creed bid from Tencent requires a leap of faith

In the “leap of faith,” the hooded protagonist makes a stomach-churning fall from the rooftops and consistently lands safely in a conveniently located hay bale. This is one of the highlights of Ubisoft Entertainment SA’s Assassin’s Creed game franchise.
After an 80% share-price meltdown in five years, the Guillemot founding family and Tencent Holdings Ltd. are reportedly considering options, including a possible purchase, for Ubisoft’s long-suffering shareholders. However, a safe departure is not guaranteed.
The Guillemots, who partnered with Tencent in 2018 to strengthen their hold and repel predators like Vivendi SA, are obviously in need of something heroic. Since then, a lot has gone wrong; with a recent profit warning, Ubisoft’s enterprise value in relation to underlying earnings fell to the lowest among rivals.
Outlaws depicts the company’s struggles to stay afloat in a market where game development is prohibitively expensive and the competition for consumer attention is becoming more fierce. After all, gamification is present everywhere, from Netflix Inc. to Duolingo Inc.
The choice to postpone Assassin’s Creed’s next installment until 2025 demonstrates how panic is affecting the game’s most lucrative assets, which featured laboriously at the Paris Olympics alongside other soft-power icons such as LVMH SE.
Nintendo Co. and Take-Two Interactive Software Inc. are major players in the gaming industry, with Nintendo Co. making a significant revenue share. However, Tencent, a Chinese bidder, is less willing to engage in cross-border deals. As Europe aims to bridge the tech gap with the US and China, Ubisoft could potentially be a strategic player.
Shareholders face challenges in a potential takeover due to structural and cyclical headwinds. Ubisoft’s current market capitalization of €1.8 billion undervalues its stable of brands. With analysts at Barclays Plc suggesting they could be worth more than €2.5 billion.
Ubisoft’s stagnating games market and poor management, including costly delays and workplace issues, may hinder its bid for a bidding war. The Guillemot family’s concentrated shareholder structure, controlling 20..5% of net voting rights, may also pose an obstacle.
As takeover speculation grows, the risk is that the Guillemots fail to close the credibility gap after years of value destruction. However, Ubisoft can restructure in a changing industry targeting the top 1% of players with premium products, potentially ensuring intellectual property longevity.