After Electronic Arts bid, Codemasters £ 1 billion bidding war looms

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Behind the Fifa franchise, the US games group is out of business with competitor Take-Two Interactive

After accepting an offer from California-based Electronic Arts, British video game developer Codemasters has become the target of a £ 1 billion bidding war. This scuttled a previously scheduled contract with U.S. competitor Take-Two Interactive, a franchise producer like Grand Theft Auto.

A £ 945 million bid for Codemasters, best known for its racing simulators, including the Formula One series, has been made by EA, the developer of games such as Battlefield and The Sims.

Codemasters’ board, which is headquartered in Warwickshire’s small market town of Southam, unanimously recommended that shareholders approve the bid from EA, scrapping a £ 759 million cash and stock swap proposed last month with rival Take-Two Interactive.

In early trading Monday, Codemasters shares jumped more than 20 percent to 642 pence, well above EA’s offer of 604 pence a share, as investors sensed a bidding war.

Take-Two, which is about half the size of the market cap of EA’s $40 billion (£30 billion), said it was “reconsidering its position in relation to Codemasters and a further announcement will be made in due course.”

Take-Two would provide an improved bid for Codemasters, analysts say.

“In some ways EA’s move feels defensive because they are already under attack from Take-Two and many of their franchises are becoming second rate compared to the market leaders,” said Mirabaud analyst Neil Campling. “I think Take-Two Interactive can counter with a higher bid because of the long-term strategic value of Codemasters’ IP and technology.”
Some Codemasters shareholders were unhappy that the board recommended only a relatively modest premium for the New York-based Take-Two deal, which they believe undervalues the company.

EA, which owns sports franchises like Fifa and Madden NFL, said a Codemasters deal that would be the biggest in the history of the industry would create a giant in the category of racing simulation.

EA Chief Executive Andrew Wilson said, “Our industry is growing, the racing category is growing, and together we will be able to lead the way in a new era of racing entertainment,”

During the coronavirus pandemic, video games, especially sports games, saw an increase in popularity as games were canceled or kept behind closed doors. Although real-world racing was suspended, Formula 1 held its own esports tournament, based on Codemasters software.

With Team 17, the studio behind the Worms franchise, up 127 percent and Frontier Innovations up 120 percent, shares of rival British video game makers have also risen in the past year.

“The Codemasters board strongly believes that the company would benefit from EA’s knowledge, resources and extensive global reach – both overall and specifically in the racing games sector,” said Gerhard Florin, president of Codemasters, who has named Jefferies Investment Bank as sole financial advisor.

Established in 1986 by brothers Richard and David Darling, Codemasters is one of the oldest British video game studios. The schoolboys then started a Spectrum games business from home and got a big hit on the Commodore 64 with Richard’s BMX Simulator. In 2007, the brothers sold their last remaining stake.

Codemasters has expanded to 700 staff and has three U.K. studios. As well as facilities in Kuala Lumpur, Malaysia and Pune, India – its headquarters include a free gym, a soccer field and its own pool.

A flurry of acquisitions in the gaming industry has been seen this year, including the $7.5 billion purchase of ZeniMax in September by Microsoft.

Satya Nadella, the chief executive of the tech giant that produces Xbox consoles, called games “the most expansive category in the entertainment industry.”

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