Ubisoft: Discipline Pressure From Tencent May Unlock Value
How the Tencent deal can impact Ubosoft
Ubisoft's carve-out deal with Tencent, giving Tencent 25% ownership for €1.16B, may impose discipline and unlock value.
The deal could pressure Ubisoft to focus on profitable projects, potentially improving productivity and profit margins, which have lagged behind competitors.
Tencent's strategic investment can leverage Ubisoft's distribution power to increase its foothold in Western markets.
Despite potential upside, I recommend a "Hold" rating, monitoring for customer enthusiasm, and successful restructuring before considering investment.
Ubisoft has entered into an agreement [1, 2] to carve out a subsidiary that will be in 25% ownership of Tencent for €1.16B and contain the rights of the largest titles of the company, including the Assassin's Creed, Rainbow Six, and Far Cry series. Investors will now essentially be investing in a holding that has a claim on 75% of the largest contributing assets. Maintaining all else constant, the value of the equity effectively dropped 25%, but investors will be re-pricing the company under the new ownership structure, which could solve some problems and unlock additional value. Note that Tencent already owns 9.7% of Ubisoft, so the 25% in the carved-out entity comes in addition to the current stake.