Friday, August 10, 2007

Friend or Foe? EA and Ubisoft

In late 2004/early 2005, Electronic Arts(EA) made a bid to buy an almost 20% stake in publisher UbiSoft. Understandably, UbiSoft feared a hostile takeover by one of its biggest rivals. A move to merge the two companies together would greatly benefit EA who hasn't had great success developing anything other than sports games. Initially Ubisoft expressed great concern about a potential takeover, especially since that stock purchase gave EA considerable voting rights, approximately 18% voting interest.

While it isn't abnormal for companies to invest in other companies via stock purchases, it raises a lot of eyebrows when a company buys stock in a competitor. When Microsoft made an investment in Apple in the late 90's, there were lots of questions to be answered and that was for a purchase of non-voting stock.

In the last few days, it has been reported that EA now has voting rights even greater than the founders of the company. This essentially means that EA has greater influence on the activities of UbiSoft's board. Of course, they have gone on record as saying that they had no intention of nominating anyone to the board, but reserved the right to do so.

It is going to be very interesting to see how these events play out in this generation of games. If EA continues to be weak at developing its own intellectual property (IP), they have enough cash and influence on UbiSoft's board to take over.

Should UbiSoft be concerned with these developments? Analysts are saying not to worry, but if I were one of the original founders, I would start looking for a big dog to get the fox out the henhouse.

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