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Vivendi’s Hostile Takeover Of Gameloft And Ubisoft Explained

by Mike Futter on Jun 02, 2016 at 07:41 AM

Over the past seven months, Vivendi has been rekindling its on again/off again relationship with the video game industry. Rather than build a publishing business, Vivendi has opted to buy its way back in. With no one selling, the company has resorted to less overt methods to get back in the game.

Vivendi’s current targets are a pair of companies founded by the Guillemot family. Gameloft, a mobile company, is now under Vivendi control after shareholders backed a takeover bid. That leaves Ubisoft in the crosshairs.

What is a hostile takeover?

When we talk about buyouts like Oculus selling to Facebook or Mojang being acquired by Microsoft, these are mutually agreed-upon deals. The seller willingly enters into the deal, with founders often profiting from the transaction.

A hostile takeover is a more insidious approach that isn’t congenial or welcome. Vivendi has been buying up shares of the two companies since October 2015. 

It’s made a few smaller transactions before making a final, successful push for Gameloft. Vivendi also now holds 15.66 percent of Ubisoft voting shares and nearly 18 percent of Ubisoft capital. (Update: As of June 20, 2016, Vivendi has upped its stake to 20.1 percent of capital and 17.76 percent of voting shares.)

Vivendi claims it doesn’t want to take over Ubisoft, but it certainly wants representation on the board. Ubisoft’s next annual meeting is likely in September, at which time some board seats will be up for vote.

Who is Vivendi, anyway?

Based in Paris, France, Vivendi is a multimedia conglomerate that has its fingers in music (Universal Music Group), television and film (Canal+), Telecommunications (Telecom Italia), and online video hosting (Dailymotion). Vivendi first entered the gaming world in 1998 after acquiring Havas, which in turn had only shortly before acquired CUC Software. CUC Software owned Sierra, Blizzard, and Berkeley Systems (You Don’t Know Jack).

In 2000, Vivendi acquired Seagram, owner of Universal Studios. The result was a merger of all of the video game studios the company picked up in the deals. One division born out of that was Vivendi Universal Games, which had a roster of powerhouse franchises, including Diablo, Warcraft, Starcraft, Half-Life, Tribes, Crash Bandicoot, and Spyro the Dragon. 

The Vivendi name faded into the background in 2007, when the company merged with Activision. Out of that merger came Activision Blizzard, which still operates as such. 

When we last covered Vivendi, before these hostile takeover actions began, it was back in 2013-14. At the time, it owned Activision, which had amassed an enormous nest egg of offshore and domestic funds. 

Vivendi was in dire need of cash though, and it was eyeing Activision’s holdings for a quick fix to its problem. It was prepared to issue a special dividend that would bleed Activision for much of its reserved funds. The action would have meant Activision calling in cash from overseas and likely paying enormous taxes to domesticate money, all just to keep its parent afloat.

Activision opted to go a different route. In 2013, it pulled together $8 billion from cash reserves and private investment to part ways with Vivendi and buy its independence.

In 2014, Vivendi sold off another $850 million of Activision stock. The once poor company was now flush.

It took about two years for the video game itch to come back. This time, the company decided to target companies at home, in France. We don’t know why Vivendi chairman Vincent Bolloré has his eye on the Guillemot family, but the intentions are clear.

Has Ubisoft said anything about the takeover attempt?

Ubisoft hasn't been silent about Vivendi's "creeping control." In fact, the publisher was quick to label the stock purchase "unsolicited and unwelcome," while remaining adamant that it is dedicated to remaining independent.

After Vivendi increased its hold on Ubisoft to more than 15 percent of voting shares in April, the publisher issued a stern statement. At that time, the company accused Vivendi of announcing "conflicting intentions," stating that there are no details or plan on how Vivendi would improve Ubisoft or generate value for shareholders.

We've reached out to Ubisoft after the Gameloft takeover went through. We'll update should we receive a new statement from the publisher.

What’s going to happen to Ubisoft, and what can the company do to stop a takeover?

Right now we don't know for certain what's in store for Ubisoft. Based on Vivendi's actions against Gameloft and its creeping control (incremental growth of ownership via stock purchase), we can hazard a guess, though.

Vivendi has made it clear it expects representation on Ubisoft's board come the next annual shareholders meeting that is likely to take place in September. If successful, Vivendi will be able to start steering Ubisoft's decisions and whispering in the ear of other board members.

It would make Vivendi's life easier if Ubisoft were in a poor financial position or clearly mismanaged, but the company has had a solid run lately, even with diminished sales of Assassin's Creed Syndicate due to Unity's technical problems. However, Far Cry Primal, The Division, Just Dance, and other recent games have all performed well.

We spoke with Wedbush Securities managing director Michael Pachter about the situation. Pachter, who is one of the most prominent analysts covering the video game industry, believes Ubisoft has a fighting chance.

"It’s not inevitable," Pachter says. "If Vivendi senses that they aren’t going to succeed, they can sell their stock. If they make a move, it’s more likely that they make a friendly offer than a hostile one, as a hostile offer could result in the Guillemots leaving the company and taking the talent with them."

Still, Ubisoft could be on the hunt for a "white knight," or more likely, a merger with an equal (as mentioned to CNBC), that will make a significant investment in the company while staying allied with the Guillemot family. This usually comes as a merger that significantly increases market capitalization and strength, and putting the firm out of reach for takeover.

We believe that Ubisoft is seeking both private support and government funding in Canada. If Ubisoft comes under Vivendi control, current executive leadership can't guarantee what will happen to the thousands of Canadian jobs in Toronto and Montreal.

Canadian Prime Minister Justin Trudeau visited Ubisoft Montreal in February. During that visit, Yves Guillemot discussed "the importance of Ubisoft's presence in Canada." Ubisoft is angling for support, and making it clear that the company's 3,000 Canadian jobs could be on the line.

There are some tactics that Ubisoft could use to stave off a hostile takeover. One such is the aforementioned "white knight." If someone steps forward, we likely won't hear about it unless the deal will outright thwart a Vivendi push.

"Activision will have trouble making an acquisition, as it is currently digesting King, but a combination would be good for them, as Ubisoft has plenty of great IP," Pachter says. "EA lost its last CEO over badly timed acquisitions, and I don’t see the current management making a bid. Take-Two makes a lot of sense, and a combination of the two companies would essentially be a merger of equals, so I think that is the most likely."

Ubisoft also has staggered board elections, with four-year terms. This means that unless Vivendi is prepared to make a tender offer (one that is made public), it has to fight battles each year for board seats.

The Guillemot family will also likely wage a political war against Vivendi, ensuring that major shareholders hold onto their stock and won't sell. Pointing out how Vivendi attempted to bleed Activision while touting its own successes in becoming a huge player in the game industry could keep investors loyal.   

If Vivendi takes over Ubisoft, what does it mean for consumers?

Right now, it's impossible to say. From the outside, it's hard to tell what's different about Activision Blizzard following its split from Vivendi.

The biggest risk for Vivendi is a talent exodus. Ubisoft without its enormous pool of creativity isn't the company that Bolloré wants. 

Taking over without driving away the people that make Ubisoft's games is a challenge. And, it's fair to say, that is what made Gameloft an easier mark to attack first.

What happens now?

Vivendi is likely to stay the course. We wouldn't be surprised if the company tries to increase its hold during the summer, but the next big test comes at the annual shareholders meeting.

There's little doubt Vivendi is trying to build support amongst existing shareholders. However, it's going to be hard to convince people that Guillemot's leadership isn't taking Ubisoft in the right direction.

Provided Ubisoft continues to land hits with Watch Dogs 2, For Honor, The Division DLC, and the Assassin's Creed movie, it will be a significant challenge for Vivendi to execute a takeover.

For now, Ubisoft continues to fight. And, according to Pachter, has a good shot at coming out of this with its independence intact. "I don’t think Vivendi will buy them, but if they do, the Guillemots would likely take the money and quit, and Vivendi might be left with a shell," Pachter says.

We'll continue to update as the story develops.