Chinese giant Tencent plans to buy out French video game studio Ubisoft after shares fall 40% in 1 year

Chinese tech giant Tencent and Ubisoft’s founding Guillemot family are reportedly exploring a take-private buyout of the French video game studio Ubisoft, whose shares have fallen over 40 per cent this year.

The potential deal, first reported by Bloomberg and somewhat confirmed by the company, comes as Ubisoft faces several internal and external challenges.

Controversies around Ubisoft
Ubisoft’s problems are partly self-inflicted, with the company facing a potential class action lawsuit over user privacy issues.

Additionally, online criticism has intensified over the studio’s next Assassin’s Creed game, which features a a black samurai as one of the lead characters. High-profile figures, including Elon Musk, have criticised the game as being “too woke,” which has stirred debate and negatively impacted the company’s public image and sales.

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Despite the character’s historical authenticity, the backlash has affected Ubisoft’s reputation. CEO Yves Guillemot referenced “polarised comments” during a recent earnings call, highlighting how the controversy may have contributed to the company’s underperformance.

Financial struggles and market reaction
Before news of the potential buyout surfaced, Ubisoft’s shares had dropped by more than 50 per cent this year, pushing its market capitalisation down to approximately €1.8 billion. However, following the news of a possible take-private deal, the company’s market cap received a slight boost.

Ubisoft, with an enterprise value exceeding €3 billion, reported €158 million in profit on €2.3 billion in revenue for the fiscal year ending March 31, 2024. The sharp decline in its stock price, coupled with ongoing issues, has made Ubisoft an attractive target for a buyout.

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Tencent’s strategic moves and past interest
The idea of taking Ubisoft private isn’t new. In 2022, private equity firms like Blackstone and KKR were exploring potential bids for the company. Later that year, the Guillemot family partnered with Tencent, which acquired 49.9 per cent of the Guillemot family’s holding company in addition to increasing its direct stake in Ubisoft.

This move was seen by analysts as a way for the Guillemot family to maintain control of Ubisoft’s governance while warding off other potential suitors.

The partnership between Tencent and the Guillemots allows them to exert significant influence over Ubisoft’s future direction. As the company struggles with its public image, controversial game launches, and financial downturns, this possible buyout may offer a pathway to stabilise Ubisoft and potentially reshape its trajectory in the gaming industry.