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Eidos takeover saga

by Nick Haywood on 7 April 2005, 00:00

Tags: Eidos (TYO:9684)

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Eidos takeover saga

The Eidos take over saga

For anyone who might read the more high-brow broadsheet newspapers, there’s been an interesting wrangle going on that concerns us gamers. Eidos, that UK publishing house that brought us Lara Croft’s undisputed assets to delight our joysticks as well as big games such as the Thief series, Championship Manager and the soon to be released Lego: Star Wars, have been in a take over battle for the last two weeks following their announcement earlier this year of an operating loss of £29.2 million up to the end of 2004.

At that time, all Eidos would say is that they were considering an offer of roughly 50p per share from an undisclosed source which they later revealed to be Elevation Partners, a US based private equity firm headed up by ex-Electronic Arts president, John Riccitiello

However, big business rarely flows smoothly and with a strong stable of games, Eidos is a pretty attractive prize so SCi came in a with a rival bid of a stock offer deal. Stockholders would receive 1 SCi share for every 6 Eidos shares, which sounds like a rough deal until you look at SCi’s stock price of, at the time of offer, 321.5 pence, meaning your Eidos shares were worth 53.6 pence, which is a decent bit more than the Elevation offer.

The advantages for the stockholders and us gamers is that an SCi takeover would see Eidos become a large publisher on the global stage instead of an embattled UK publisher struggling to cover running costs and the company would remain UK based with the intellectual rights over its products.

Now, Eidos decided to ask it’s shareholders to all just hang on a minute and calm down whilst the board considered the two options and offers from the rival companies, something which didn’t go down too well with a number of shareholders. An investment firm called Schroder Investment Management which handles stock on behalf of clients, accepted SCi’s offer on behalf of the clients it represented which meant that 14.99% of Eidos’ stock was now in SCi’s hands with another 4.79% accepted on letter of intent (which means the deal hadn’t been done but was as good as done).

All of this was going on while the Eidos board were having their ponder over what to recommend to their shareholders. Just to keep things lively and interesting, other shareholders on finding out about the Schroder acceptance then demanded action which evoked a further ‘do nothing’ response from Eidos. This in turn prompted other shareholders to call for the removal of the board in the face of apparent confusion over which offer to endorse.

It would appear that the reasons for the delay were more personal than business though as news began to leak out as to the two quite different business planes proposed by each bidder should they be successful.

Elevation was likely to leave most of the senior management in place for several more years, which irked shareholders given Eidos’ poor performance of late. Conversely, SCi were expected to extensively restructure Eidos, which would inevitably lead to senior management roles going… so could it have been the top boys were thinking of something other than the best thing for the company and its shareholders?

And while all this was going on, yet more investment firms were selling their clients Eidos stock to SCi, meaning that at least 40% of the stock was in SCi’s hands from their 1 for 6 offer. It’s been speculated that Eidos stalled in a bid to give Elevation time to raise more capital for their offer as theirs is a cash buyout and not a share exchange like SCi’s but it look as if the Elevation has decided against offering any more to Eidos shareholders.

Today Eidos announced that they were backing the SCi offer meaning that if successful, Eidos remains a UK based company and will now be restructured along the lines of SCi’s contractor based system involving developers such as Pivotal Games amongst many others.

Elevations response to the announcement was to point out that the SCi bid is risky, which Eidos themselves have acknowledged, and to claim that SCi lack the expertise and knowledge to pull Eidos out of the mire. Further, Eidos will now have to pay Elevation a £700,000 break fee as the deal has collapsed, a further sign of how keen the management were to get into bed with the US based Elevation.

Only time will tell if SCi have the business acumen to turn Eidos around and if the expected heavy investment needed in the company will pay off in the future. I for one am glad to see a UK company stay a UK company. The growing trend of huge publishers buying up the small will only stifle creativity, meaning truly groundbreaking games will never see the light of day. The smaller developers and publishers, thought less able to take a risk on something new, do so speculatively… they take the risks and see what happens. If the trend of big business buying into a market they understand only in terms of profit and loss sheets continues, soon all we’ll see on our game store shelves will be “The Sims 42” and “FIFA 2006:September Edition” along with dreary expansion packs and sequels galore. I take my hat off to SCi and hope they can get Eidos going again.