Codemasters Agrees to $1.2 Billion Counterbid From EA

(Bloomberg) -- Codemasters Group Holdings Plc has agreed to a $1.2 billion bid from Electronic Arts Inc., which topped a $956 million offer from Take-Two Interactive Software Inc.

The London-traded producer of racing video games said its shareholders will receive 604 pence in cash for each ordinary share of Codemasters, according to a statement on Monday. The rival offer could spark a bidding war for the maker of the popular Formula 1 racing franchise, after video game makers have soared in value with consumers stuck at home due to the pandemic.

Shares in Codemasters rose as much as 19% to 634 pence in trading in London on Monday.

Take-Two first revealed a a cash-and-stock deal agreement for Codemasters in November, valuing the U.K. firm at about 528 pence per share based on Take-Two’s last closing price. The EA deal values Codemasters at about 14.4% higher than Take-Two’s offer.

Take-Two’s bid already faced investor opposition. The cash and stock proposal’s value has fluctuated over time, and as of Friday’s close it translated into more than a 1.1% discount to Codemasters’s share price. Columbia Threadneedle Investments has argued the takeover doesn’t value Codemasters as high as its listed peers.

“To strengthen the position that Codemasters has built within the racing category, there is an increasing necessity for additional investment in both resources and skills across its portfolio,” Codemasters said in a statement Monday.

Although Codemasters’ board has sided with EA, analysts remain unconvinced. Unlike Take-Two, EA has a collection of racing games including the well-known Need for Speed franchise. “In some respects, EA’s move feels defensive,” said Neil Campling, analyst at Mirabaud, “because they are already under attack from Take Two and many of their franchises are becoming second rate relative to leaders.”

Take-Two has a stronger strategic rationale for the acquisition, in our view, given a lack of racing franchises and technology sharing into other games such as GTA.

Matthew Kanterman, Nathan Naidu, technology analysts, Bloomberg Intelligence

“Take-Two is considering its position in relation to Codemasters and a further announcement will be made when appropriate,” Take-Two said in a statement Monday.

The gaming sector has seen a flurry of deals across all platforms over the past year, led by Microsoft Corp.’s $7.5 billion deal for ZeniMax Media Inc., the owner of the storied video-game publisher Bethesda Softworks, which is behind games such as The Elder Scrolls, Doom and Fallout. San Francisco-based Zynga Inc. also acquired mobile developer Peak for $1.8 billion, creating Turkey’s first gaming unicorn.

The video-game boom caused by the pandemic is expected to send industry revenue up 20% this year to $174.9 billion, outstripping earlier forecasts and dwarfing the market’s growth in 2019.

The projected revenue, which includes mobile, console and personal-computer games, will climb three times faster than last year, according to estimates from research firm Newzoo. The forecaster had to make the biggest-ever adjustment in its outlook to account for the bump from the pandemic.

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