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Square Enix Bids to Snag Eidos

eidos sale watchOn a day when Midway Games failed to find a buyer or new capital, fellow publisher Eidos had better luck.  The beleaguered publisher, suffering its own financial woes, revealed new details on a buyout overture first announced in early January.  What was initially disclosed as an unnamed suitor turns out to be Japanese publisher Square Enix.  The company has made a formal bid of £84.3m in cash  (approximately $120 to $122m depending on exchange rates) to acquire the company.

The details to emerge thus far:
Eidos’ board has unanimously agreed to endorse the Square Enix offer.  At the offer price of 32 pence per share its represents a 91% premium over the company’s three month average closing price (for the period up to February 11th). The premium is also a 258 % improvement over Eidos’ closing price on January 14th, the last day of trading prior to the company’s announcement it had been approached with a takeover offer.

An Extraordinary General Meeting (the UK equivalent of a Special Shareholders Meeting) is scheduled for some time in March. For the deal to go ahead, 75% of shareholders will have to vote in favor.

Already, Square Enix has about 33% of the vote in its pocket.   Major shareholders Insight Investment Management and Cazenove Capital Management, Ltd. have both agreed to vote their combined 34,225,256 shares (or 13% of outstanding stock) in favor.  Warner Brothers Interactive Entertainment, which holds another 52,518,080 shares (equivalent to about 20%) is obligated to vote the same through a subscription agreement. 

Tim Ryan, Eidos’ chairman, endorsed the deal particularly given the “challenging market backdrop.”  In a statement (PDF) he said “the acquisition of Eidos will complement Square Enix’s expansion into Western markets and offers mutually beneficial opportunities for the combined group. The Board believes that this offer is the best interest of shareholders.”

Board members have irrevocably agreed to vote their outstanding sum of 204,153 shares in favor of the deal.

Gathering the remaining votes is largely  expected to be a formality.  Only a higher offer from a third party would free Cazenove Capital, Insight and WB Interactive from their pledged support.  And even then, Square Enix would likely still end up with its prize.  Revealed deal terms show Eidos has pledged not to actively solicit another bid and given Square Enix the right to match any higher offer that does come in.   

The prospect of an outside bidder still can’t be completely ignored.  In fact, there’s almost a strange déjà vu to the whole situation.  Just five years ago, the media centric private equity firm Elevation Partners tried to buy Eidos for a price in the range of the current offer ($135m plus operating capital,  then about £71  was offered).  Eidos was on the verge of accepting, its board endorsing the deal.  On March 21st, 2005, Reuters even went to the wires with a story that the deal was done. 

In the eleventh hour, SCi  Entertainment made a competing bid that shareholders favored. Elevation declined to match the £76.1m offer (stock swap instead of cash) and withdrew in April.  SCi won the prize.

Electronic Arts CEO John Riccitiello, then a managing partner at Elevation and one of the lead architects in their bid for Eidos, was skeptical that SCi would be able to salvage the company.  He was quoted saying that “while SCi is a successful company, it has little experience of integrating larger businesses, of running a major international video games company or in managing significant intellectual properties.” (via

Riccitiello turned out to be correct and Eidos ended up on the sale-block again,  this time with Square Enix looking to be its white knight. Riccitiello’s Electronic Arts is one of handful suitors that could sneak in and push the price.  Others, as discussed in greater detail in past review of possible Eidos buyers on Metue, include Warner Brothers Interactive Entertainment, Ubisoft and Take Two.

Realistically, given the economy and operational challenges facing a number of large publishers, odds are against many opening their corporate checkbooks. It’s not a safe bet. On the hand, for a gambler, $121m to scoop up A-list brands like Tomb Raider, Hitman and Deus Ex could  be attractive enough to cause some second thoughts.  

As a bonus, Eidos employs more than 600 people and is the largest game developer and publisher based based in the UK.   There is some real development talent in its ranks.

(Again, a more detailed review of some of the potential buyers, along with a history of Eidos,  is available here in past Metue coverage)

If shareholders do approve Square Enix’s bid, the deal would be expected to close in April and Eidos would cease trading on the London Stock Exchange.

Square Enix, as the buyer, could definitely use the positive news.  Despite getting the rights to publish Activision’s Bond: Quantum of Solace game in Japan and signing a distribution deal with Ubisoft, the company’s shares are currently trading near six year lows in Tokyo.  It recently delayed the next installment of its “Dragon Quest” game from March to July, and consequently, cut its annual profit forecast by 63%.

UBS has been advising Square Enix on the deal.  Citi is providing banking counsel to Eidos

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