=DJ UPDATE: Shellshocked Eidos Puts Up For Sale Sign >EIDSY (Dow Jones News Service)
Updated: Thursday, June 17, 2004 07:34AM ET
(This item updates an item timed 0914 GMT with additional analyst comment.)
By Nic Fildes
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--U.K. computer games developer Eidos PLC (EIDSY) Thursday effectively put itself up for sale after delaying the release of a key title due to market weakness.
The delay of its first-person shooter war game ShellShock: Nam '67 will wipe out its profit for the full year, and comes hot on the heels of a profit warning related to sales of its key Hitman: Contracts game in May.
Eidos shares, which took a pounding on the back of the Hitman hiccup, were down another 3.8% at 109 pence by 1121 GMT. The fall was mitigated by the potential for a takeover.
The company, which was at the center of erroneous takeover speculation last month, has effectively kick-started the talk again by initiating a strategic review of its alternatives.
"We have three or four options. We have plenty of cash and a good portfolio of games...there is no preferred option," Eidos Finance Director Stuart Cruickshank told Dow Jones Newswires.
A review had been widely expected due to the current weakness of the computer games market in North America, which has started filtering through to Europe. Eidos has often been considered too small to effectively compete against market leaders Electronic Arts Inc. (ERTS) and Activision Inc. (ATVI).
Asked if the company has been approached about a takeover, Cruickshank said, "It's a very chatty industry and everyone talks to everyone else all the time...but any serious offer would be reported immediately."
He refused to comment on what price would be appropriate for a takeover offer or on whether that would be the most appropriate route for Eidos at this stage.
Eidos has a number of titles in its portfolio that would be of great interest to both EA and Activision as well as continental rivals such as Ubi Soft Entertainment SA (5447.FR), Infogrames Entertainment SA (5257.FR) and potentially even Sony Corp. (SNE) or Microsoft Corp. (MSFT), the makers of the leading gaming consoles that have also been active predators in the games market.
Eidos' stable of games - including the massively successful and high-profile Lara Croft: Tomb Raider series, the PC-based Championship Manager series, war game Commandos and assassination simulation game Hitman - will appeal to predators looking to increase their exposure to hit intellectual property.
Eidos said it's increasingly reliant on key titles because of the steep research and development costs needed to develop games for the next generation of gaming consoles, including the impending release of the second version of Microsoft's XBox console and the third version of Sony's PlayStation.
It said franchise scale and diversity, aligned to financial strength, is becoming ever more important as a result, and is mindful of the potential benefits of scale in reducing the risk exposure caused by technology transitions.
Cruickshank explained that the company took action to increase its scale at the end of last year after the delay of a Tomb Raider release hit its financial results. It purchased Danish developer IO Interactive, but found few other targets to solve its scale issues.
The review will be complete by the time Eidos reports full-year results in early September. Cruickshank said that its product release schedule for next year includes new games in its Tomb Raider, Hitman, Commandos, Championship Manager and now ShellShock franchises, but they will be weighted toward the second half in terms of volume shipments.
The delay of its new ShellShock: Nam '67 war game until September will result in the company reporting break-even or a small loss for the year to June 30.
Unlike the prolonged delays to the release of the sixth Tomb Raider title last year due to development hitches, the ShellShock delay is due to market weakness over the summer.
ShellShock: Nam '67 will now be released in September. It may still perform to expectations, but profit from it will be booked in fiscal 2005.
Evolution Beeson Gregory analyst Tejinder Randhawa said the house brokerage will cut its fiscal 2004 forecasts as a result of the delay. He now expects a loss of GBP1 million, before tax, compared to his previous pretax profit forecast of GBP7.5 million - and a loss per share of 0.7 pence, from a earnings per share forecast of 4 pence.
Randhawa said that, based on Evolution's forecasts of sales for Eidos' five key titles, the company has a fundamental value of between 110 pence and 130 pence, excluding cash and other assets and games. He said management might expect to gain a significant premium.
He said Eidos would be an attractive target as larger companies with significant distribution channels could do a lot more with titles like Tomb Raider. Evolution rates the stock at buy.
Rival French games maker Ubi Soft Entertainment S.A. (5447.FR) Thursday reported a 12% increase in revenues to EUR508 million. Goldman Sachs said guidance for EUR560 million in revenues and EUR46.5 million in operating profit in fiscal 2005 was very strong and reiterated its outperform rating.
