Tencent seeks to raise stake in game maker Ubisoft: sources

TENCENT Holdings plans to raise its stake in French video game group Ubisoft Entertainment as the Chinese gaming giant pivots to the global gaming market, 4 sources with direct knowledge of the matter told Reuters.

China's largest social network and gaming firm, which bought a 5 per cent stake in Ubisoft in 2018, has reached out to the French firm's founding Guillemot family and expressed interest in increasing its stake in the firm, the sources said.

It is not clear how much more Tencent plans to own in Ubisoft, valued at US$5.3 billion, but Tencent aims to become the single largest shareholder of the French company with an additional stake purchase, 2 of the sources said.

Tencent plans to buy a part of the additional stake in Ubisoft, the maker of the blockbuster Assassin's Creed video game franchise, from the Guillemot family, which owns 15 per cent of the firm, 3 of the sources said.

Tencent could offer up to 100 euros (S$140.5) per share to acquire the additional stake, 2 of the sources with knowledge of the internal discussions, said. It paid 66 euros per share for the 5 per cent stake in 2018.

Ubisoft shares surged more than 15 per cent after the Reuters report. Shares in Guillemot, the holding company in which the Guillemot family owns the majority shareholding, were trading up more than 7 per cent.

Two of them added the Chinese firm will also seek to acquire shares from public shareholders of Ubisoft, to boost its ownership and become the single-largest shareholder.

About 80 per cent of the French firm's shares are owned by public shareholders, according to its latest annual report.

All the sources declined to be named as they are not authorised to speak to the media.

Tencent and Ubisoft declined to comment.

Representatives of the Guillemot family could not be immediately reached for comment.

The details of the deal have yet to be finalised and are subject to change, said the people who spoke on condition of anonymity as the information is private.

The planned stake purchase, Tencent's latest major foreign deal since a regulatory crackdown in late 2020, will help it offset some of the pressures in the domestic gaming market. China's video games market, the world's largest, has become fiercely competitive.

"Tencent is very determined to nail down the deal as Ubisoft is such an important strategic asset for Tencent," one of the people said.

At the top end of 100 euros per share, Tencent's offer will be a premium of 127 per cent to the stock's 44 euros average price over the past 3 months, and is close to its historical price ceiling at 108 euros in 2018.

Tencent has submitted to the Guillemot family a term sheet - a non-binding offer describing the basic terms and conditions of an investment, said 1 of the people, with a price "way above" the company's current price to ward off potential competition.

The aggressive offer also comes as global gaming power houses have been rushing to snap up quality independent game makers in recent years, which are in scarcity, 2 of the sources said.

Tencent's senior executives flew to France in May to meet the Guillemot family about the purchase, 2 of the people said.

China's gaming regulator has not granted any new game licences to Tencent at home since June last year, before it froze gaming approvals for nearly 9 months. Since it resumed approvals in April this year, none of the past 4 batches included the company.

In May, Tencent reported that its domestic game revenue dropped 1 per cent in the first quarter while international game revenue rose 4 per cent.

Tencent, which has stakes in US video game developers Epic Games and Riot Games, said in June it would release its flagship mobile game Honor of Kings globally by the end of the year.

In 2016, it bought a majority stake in Clash of Clans mobile game maker Supercell for roughly US$8.6 billion, one of the world's biggest ever gaming deals.

It also owns 9 per cent of UK video gaming firm Frontier Developments and said last year it would buy another British developer Sumo in a US$1.3 billion deal.

Ubisoft, whose titles also include Prince of Persia and Rainbow Six, in May forecast lower operating profit for 2022-23 after the company reported operating income for 2021-22 that missed estimates. REUTERS