Ubisoft's Independence Battle

Assassin's Creed creator may yet need a white knight

In Ubisoft's top-selling Assassin's Creed video game, fans help the stealthy Ezio Auditore to leap from roof to roof in Renaissance-era Florence to save the world from a shadowy Knights Templar conspiracy.

Ubisoft Chief Executive Yves Guillemot needs to channel some of Ezio's wiles and strength if he is to win a battle that threatens the independence of the company he founded.

His adversary is not a Templar but Vincent Bollore, the largest shareholder and chairman of Vivendi, which has bought 15 percent of Ubisoft against Guillemot's wishes.

Let the Games Begin

Ubisoft shares have underperformed industry leaders

Source: Bloomberg

Vivendi wants to get back into video games, one of the fastest-growing segments in media, and may think it can generate synergies with its pay-TV and music businesses.  It's an about-face for the European media group: Vivendi sold most of a 61 percent stake in industry leader Activision Blizzard in 2013, and the remainder a few months ago.

Vivendi was not a good owner of Activision, which at the time was riding high from the pioneering multi-player online game World of Warcraft. The older executives in Paris found the games violent and strange, and they meddled with Activision management. Clearly they couldn't realize the value of what they had: they sold at $13.60 a share, and the price tripled by the end of 2015.

Bollore still doesn't have anyone in top management who understands video games so Vivendi's not likely to bring much know-how to the table. It's a different universe from that of Guillemot and his five brothers, who've built substantial credibility in the gaming world by turning Ubisoft into the fifth-biggest independent publisher by sales.  

In a sign of Vivendi's determination to get back into gaming, Bollore's also bought 28 percent of the share capital of mobile games maker Gameloft, founded by Yves' brother Michel. The stake is just under the legal threshold for a mandatory takeover.

Digital divide

Ubisoft depends too much on physical game sales, and could sell more virtual goods to gamers

Source: Company filings

But cracks are showing in Ubisoft's armor. Operating profit margins hover around 11 percent, compared with mid-to-high 20s for leaders Activision and Electronic Arts. It's been slower to shift to Internet from physical distribution, and hasn't done as much to wring payments out of obsessed gamers by selling virtual objects, like sharper swords or healing potions.

Worse, it scrapped the usual autumn release of a new version of Assassin's Creed, a tacit sign that the franchise is losing steam. It's a missed opportunity to build synergies with the December premier of a film based on the series and starring Michael Fassbender.

It can't afford for results to deteriorate further. Ubisoft warned last week that sales would be 7 percent lower this fiscal year versus its earlier forecast for no change, and that Ebit would be 25 percent below its previous 200 million-euro ($223 million) target. Investors sent shares down more than 10 percent, the biggest single-day loss since late 2013.

Thinner Margin

Ubisoft lags peers on profitability, giving investors a reason to question its strategy

Source: Bloomberg

Guillemot is expected to lay out a three-year plan at Ubisoft's investor day on Thursday to show holders that they should trust him and not Vivendi to create value. And he needs to deliver -- it's arguably his complacency that opened the door to a savvy corporate raider, and Bollore stepped in.

The family may also have to make concessions on governance -- of the nine current board members, five are Guillemots. Or they could stump up more cash themselves: the family only owns 9 percent of the share capital and holds about 15 percent of the voting rights. If none of this works, Ubisoft may have to kick its search for a white knight into gear. It hired investment banks to look for partners last year, although no announcements have yet been made.

Otherwise, the Templars may prevail over the silver-caped Ezio.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Leila Abboud in Paris at labboud@bloomberg.net

    To contact the editor responsible for this story:
    Jennifer Ryan at jryan13@bloomberg.net

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