If billionaire Vincent Bollore wants to get his hands on video game maker Ubisoft Entertainment SA after nearly two years of trying, he should just pay up.
Bloomberg News reported on Thursday that Vivendi was weighing a hostile bid for the 75 percent of Ubisoft it does not already own. Offering an attractive premium on the share price is the only way Vivendi can win over shareholders and neutralize the founding Guillemot family's opposition, given that they still own 13 percent of the shares and 19.4 percent of voting rights. This approach would be a departure from his track record as a corporate raider who seizes control of companies by taking minority positions on the cheap.
If you put a 30 percent premium on the average share price for the past three months, Vivendi would bid around 5.5 billion euros ($6.1 billion) for the rest of the world's seventh-largest games maker by sales. Since Vivendi could probably block any other bidders from coming in, it could try for only a 25 percent premium or a bid of 5.25 billion euros.
That said, I've argued and still believe Ubisoft has no need for Vivendi and would be better off on its own. Chief Executive Officer Yves Guillemot, a soft-spoken Breton, is a legend in the gaming world and beloved by the creative and geeks who staff the French company. At the E3 annual conference this week, Ubisoft, which makes the Assassin's Creed and Tom Clancy franchises, was feted by some observers as the most audacious of the big games makers. The risk of a brain drain under Vivendi ownership is real.
Plus, Guillemot's stayed on track with a three-year plan to boost revenue by 60 percent to 2.2 billion euros and triple operating profit by doing more in digital sales and games subscriptions. Shares are up almost 50 percent since January, and that's down to work done by Ubisoft, not bid speculation. Gross margins have improved, and the proportion of games sold digitally has expanded to about half from only a third in 2015. Sure, Ubisoft isn't as profitable as larger rivals Activision Blizzard and Electronic Arts, but it's improving on its own.
The problem is that if Vivendi puts in a real bid, Guillemot may simply lose the support of shareholders who want to take the money.
Vivendi could afford to bid around 5 billion euros if it sold off its Mediaset stake or listed part of Universal Music Group, as it's said to be considering. Without such moves it would be tough to pay in cash, given Vivendi's current debt and cash positions. Fitch reckons the ratio of the company's funds from operations to total debt could rise to 2 - 2.8 times once it finishes buying ad agency Havas. Even though Vivendi has signaled it doesn't want to overload debt, it has several ways to fund a Ubisoft bid if it wants to.
Beyond the money, Bollore and Vivendi executives bring zero gaming expertise or marketing muscle to the table. They see games as another vertical to help them deliver on their vision to be a European media powerhouse, whatever that means. Before Bollore took effective control of Vivendi, it used to own a controlling stake of the best video games company in the world, Activision Blizzard. But it sold it off for a low price. It's rich to see it get religion about gaming's potential now.
In reality Vivendi is now simply a holding company for Bollore's family, with little strategy guiding its moves. After closing the strategically nonsensical Havas deal, Vivendi will be a conglomerate owning the world's biggest music label, a French pay-television operator, an ad agency, and stakes in Telecom Italia and Mediaset. Video games totally makes sense in there, right? Right.
The status quo of uneasy truce between Vivendi and Ubisoft will not hold forever. When the time comes, it'll be the shareholders who decide.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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