Codemasters Group Holdings PLC (LON:CDM) said it will recommend investors accept a takeover offer from Electronic Arts Inc (NASDAQ:EA) after the US video games giant gatecrashed merger discussions between the AIM-listed developer and Take-Two Interactive Software Inc (NASDAQ:TTWO).
Codemasters, which is known for developing racing games including the F1 franchise, previously said on November 10 that it had reached an agreement with Take-Two over a possible takeover offer of 485p per share, of which 120p will be in cash and 365p will be paid in Take-Two shares, valuing the company at £735mln.
However, on Monday Codemasters said it was withdrawing its recommendation for the proposal after EA swooped with a cash offer of 604p per share, a 13.1% premium to Friday’s closing price and valuing the firm at £954mln.
Announcing its offer for Codemasters, EA said it believed the combination “creates an opportunity to deliver further growth and success for Codemasters' and EA's popular and innovative franchises” while also creating a “global leader in racing entertainment experiences”.
"Electronic Arts and Codemasters have a shared ambition to lead the video game racing category. The board of Codemasters firmly believes the company would benefit from EA's knowledge, resources and extensive global scale - both overall and specifically within the racing sector. We feel this union would provide an exciting and prosperous future for Codemasters, allowing our teams to create, launch and service bigger and better games to an extremely passionate audience", Codemasters chairman Gerhard Florin said in a statement.
"We believe there is a deeply compelling opportunity in bringing together Codemasters and EA to create amazing and innovative new racing games for fans. Our industry is growing, the racing category is growing, and together we will be positioned to lead in a new era of racing entertainment."
"We have admired Codemasters' creative talent and high-quality games for many years. With the full leverage of EA's technology, platform expertise, and global reach, this combination will allow us to grow our existing franchises and deliver more industry-defining racing experiences to a global fan base”, added EA chief executive Andrew Wilson.
In a note, analysts at Shore Capital downgraded their rating on Codemasters to ‘hold’ from ‘buy’, saying the firm has a “unique position” in the video game market and that the counter-offer from EA “better reflects” the firm’s qualities such as its “key relationships, significant exposure to important growth verticals and … the upward trajectory it has been experiencing since its listing”.
“The value of the new offer is more akin to the sector average and provides a greater premium to CDM’s current trading value and the Take-Two bid. Therefore, we suggest that shareholders vote in favour of the EA’s counteroffer. We would expect CDM’s share price to rise to a similar level of the bid and at this point, we would value it as fair and downgrade our recommendation from Buy to Hold”, the broker said.
Codemasters shares jumped 19.1% to 635.9p in early deals.