- EA has put in a £945m cash takeover offer for the video games developer
- Management has withdrawn its recommendation of Take-Two's £739m offer
Video game developer Codemasters (CDM) is now recommending a takeover from Electronic Arts (US:EA), in a cash offer of 604 pence per share. The bid values the company at around £945m, and represents a 73 per cent premium to the closing price on the day that Take-Two Interactive (US:TTWO) tabled its offer at 11 per cent in November.
Take-Two's market value is around half the size of EA's, although a statement this morning that it was “considering its position and would make a further announcement when appropriate” suggests that a bidding war could be on the horizon.
But Codemasters’ board has withdrawn its recommendation of Take-Two’s offer, which had been on track to complete in the first quarter of next year. Indeed, with reports of discontent among shareholders about the low value of the offer, as well as its arguably less appealing share component, we are not surprised that EA has swooped in for the kill. And with such a high quality operation, it is little wonder that Codemasters is attracting so much attention. Its shares have been on a tear since their nadir in March (around the time of our buy tip) and have more than doubled in value.
The company has been buoyed by an industry-wide lockdown boom, as well as a slate of new titles, which pushed operating profit up by more than two thirds to £20m in the first half. And there is more to come: Codemasters has another release scheduled, Project CARS GO, in the second half of this year, and at least three new titles in its 2022 financial year - including the first iteration of the F1 franchise on the new Xbox and PS5 consoles. What’s more, the lifecycle and engagement of each game is still growing, as its ‘games as a service’ (GaaS) strategy keeps players hooked for longer.
With these long-term growth drivers in mind, it is hard to mask our dismay that a rare pearl in the UK’s technology sector looks like it will once again be snapped up by a bigger American company. But the scale of either Take-Two or EA’s publishing capacity will no doubt help Codemasters extend its reach. We still would not be surprised if other larger developers threw in competing bids, given the flurry of merger and acquisition activity in the sector this year - led by Microsoft’s (US:MSFT) whopping $7.5bn purchase of ZeniMax Media.
Indeed, analysts at Peel Hunt noted that Ubisoft (FR:UBI) had a €600m (£534m) bond issue for "general corporate purposes as well as potential future acquisitions", although there is no concrete evidence that points to a competing offer for Codemasters. Still, a bidding war now looks feasible. EA’s offer is much more attractive than Take-Two’s initial bid, but there is time for the latter to make a comeback. For now, await documents.
Last IC View: Buy, 328p, 22 Jun 2020
