Ubisoft Creates New Subsidiary With Tencent for Top 3 AAA Game Franchises

After many rumors and supposed leaks claimed that Tencent was preparing a buyout of Ubisoft, it seems as though an alternative solution was reached, with Ubisoft today announcing that it has created a new subsidiary to house some of its biggest gaming franchises. According to the announcement, the new business entity is “based on its Assassin’s Creed, Far Cry, and Tom Clancy’s Rainbow Six brands,” and it received initial funding from Tencent, which owns a 25% stake in the new business. Tencent’s investment in the new subsidiary is to the tune of €1.16 billion.

The announcement also gives us an indication of what to expect from these game franchises going forward. For starters, Ubisoft mentions that the new subsidiary—and likely the capital injection from the Tencent investment—is part of a new business model that would allow it to invest more in increasing the quality of its creative outputs. Supposedly, it will focus on quality story-driven solo games and growing its multiplayer offerings with more frequent content updates, more social features, and introducing “free-to-play touchpoints.” The acquisition comes after a series of delays marred the lead-up to the launch of the latest Assassin’s Creed Shadows, which ultimately seems to have been a commercial success. In keeping with other trends, Ubisoft mentions in the press release that the move to split off these gaming IPs will also help accelerate its recent moves to make these gaming franchises multi-platform. Recently, Ubisoft has repeatedly stated that its strategy moving forward would include more multi-platform day-one launches, as opposed to console exclusives and timed exclusives.

The details of the creation of the new subsidiary and the agreement entered into by Ubisoft and Tencent are as follows:

Relationship between the new subsidiary and Ubisoft Entertainment:

• The new subsidiary would include the teams developing the Tom Clancy’s Rainbow Six, Assassin’s Creed and Far Cry franchises based in Montréal, Quebec, Sherbrooke, Saguenay, Barcelona, and Sofia as well as the back-catalog and any new games currently under development or to be developed.
• The new subsidiary would be granted by Ubisoft a worldwide, exclusive, irrevocable, perpetual license in respect of the intellectual property and similar proprietary rights owned or licensable by Ubisoft in relation to Tom Clancy’s Rainbow Six, Assassin’s Creed and Far Cry in exchange for a royalty.
  Main terms of the binding agreement with Tencent:
• Tencent would invest in the new subsidiary which is headquartered in France and 100% owned by Ubisoft immediately prior to the transaction. Specifically, at closing of the transaction, Tencent would invest a total amount of EUR 1.16bn for an approximate 25% economic interest in the New subsidiary, that will be used to strengthen Ubisoft’s balance sheet by significantly reducing its consolidated net debt position, accelerate the Group’s transformation, and sustain growth of selected franchises. After closing of the transaction, the new subsidiary would remain exclusively controlled and consolidated by Ubisoft.
• Conditions precedent to the transaction:
• Issuance of a fairness opinion from Finexsi acting as independent expert
• Completion of the carve-out to create the new subsidiary
• Obtention of the necessary regulatory clearances
  Ubisoft can unilaterally waive the issuance of the fairness opinion as a condition precedent.
• Completion of the transaction is expected before the end of 2025.
• The new subsidiary would have a dedicated leadership team, supervised by a Board of Directors, focused on enhancing creative vision and streamlining operations, with the authority to make swift, high-impact decisions across development, marketing, and distribution, to ensure these brands continue to evolve, attract new audiences, and deliver groundbreaking gaming experiences for years to come.
• Tencent would benefit from customary minority protection veto rights as well as certain consent rights on the disposals of the important new subsidiary assets
• Other provisions in relation to Tencent’s shareholding in the New subsidiary notably include:
• A 5-year lock-up undertaking on New subsidiary shares held by Tencent, unless Ubisoft no longer owns a majority of New subsidiary voting rights and share capital
• Ubisoft may not cease to hold a majority of New subsidiary voting rights and share capital
  for a 2-year period
• Customary share transfer provisions, including, a right of first refusal to the benefit of Ubisoft, a right of first offer to the benefit of Tencent, tag-along right to the benefit of Tencent, and drag-along right to the benefit of Ubisoft (subject to certain conditions)
• Call option to the benefit of Ubisoft and put option to the benefit of Tencent in the event of certain change of control of Ubisoft approved by its Board of Directors – [Exercise price will be the higher of (i) the fair market value of New subsidiary shares and (ii) the same EBIT multiple as that in the change of control transaction of Ubisoft; it being specified that for the call option there will be a specific minimum price protection during the first 4 years following closing of the transaction with Tencent.