French games giant Infogrames has confirmed an interest in video games publisher Eidos, owner of the Tomb Raider franchise starring Lara Croft, but says Eidos is just one of a number of possible acquisitions.
Media reports have suggested that talks are at an advanced stage regarding a possible 700p a share bid for Eidos, which represents a hefty premium on this morning's share price of 486p.
However, Infogrames chief executive Bruno Bonnell is reported as having downplayed the possibility of a bid for Eidos in the near future, saying his preference is to buy a business in Asia. Wimbledon-based Eidos has become a takeover target following the issuing of two profit warnings and a hefty loss of £26.8m. Other companies said to interested include Electronic Arts and Microsoft.
Once a City darling with a share price of more than 3000p, Eidos' latest Tomb Raider releases have failed to match the blockbuster levels of the original Playstation title and its first two sequels, resulting in losses and shares crashing to a low of 254p. Although shares have fluctuated between 400p and 550p in recent weeks, this still values the firm at around £500m, and makes it vulnerable to takeovers from better funded European and US rivals.
Eidos expanded rapidly following the arrival of chief executive Charles Cornwell in the mid-1990s. Cornwell used the then video compression firm's listing on the Stock Exchange's Alternative Investment Market to raise funds for a series of investments and acquisitions of UK games developers, including Derby-based Core Design, creator of Tomb Raider heroine Lara Croft.
Although often reporting losses in its early years, City investors who backed Eidos' management team's rapid expansion were rewarded by a series of profits, following the success of Tomb Raider, first released in 1996. The World Economic Forum even named Eidos business of the year.
Industry experts say Eidos' lower share price is due more to the City's strong reaction to a downturn in the industry's usual boom and bust cycle rather than an accurate reflection of any decline in the company's performance in changing market conditions.
They say Infogrames is in a position to make a bid for Eidos because French investors are said to understand the cyclical nature of the video games business better. This gives French games developers higher valuations during the troughs of the hardware sales cycle, enabling them to acquire UK firms. Infogrames has already swallowed some of the UK's bigger publishers, including Manchester-based Ocean.
Although Tomb Raider has funded Eidos' rapid expansion, the publisher may not be as dependent on the franchise as investors seem to think. The firm also publishes the successful series of Resident Evil console games and Championship Manager series of PC games, and has the rights to produce games around the Olympics. Eidos also recently completed licensing deals to produce games based on the claymation Chicken Run movie and Disney properties.
Should Eidos remain independent, industry experts predict that it will increase revenues again following the release of a Tomb Raider movie this autumn and improve software sales generally following the arrival of new consoles such as Playstation2 later this year.
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