THQI/EIDSY Merger Possibilities
After hearing management state their respective objectives during THQI and EIDSY's recent conference calls, I started thinking about how complementary these two companies are. Consider the following:
THQI would like to expand its presence in the CD-ROM market -- EIDSY is one of the leading CD-ROM game publishers
THQI would like to expand its market share in Europe -- EIDSY is the leading European game publisher.
THQI has been criticized by some (e.g., Wedbush) for not owning enough in-house development resources -- EIDSY has spent the last few years acquiring companies and cultivating relationships with numerous leading European game developers.
THQI may be at risk of losing one of its most cherished licenses, WCW, which is up for negotiation beginning 6/99 -- EIDSY owns Tomb Raider and Lara Croft outright. After Myst and Riven (which seems to have been played out) this is arguably the most valuable game franchise in the world (though the Tiger Woods license may prove to be as big if not bigger for ERTS).
EIDSY is looking to gain market share in the U.S. -- THQI is now among the leading game publishers in the U.S.
To reach full valuation, EIDSY needs to increase its visibility in the U.S. -- After blowing away recent estimates, THQI is now on the radar of institutions (a situation which would be further improved if the two companies were to merge, thus creating a global video game powerhouse).
EIDSY could generate significant incremental revenue by porting its games on to the Game Boy platform, one of THQI's main core competencies.
Investors may still be wary of EIDSY due to its troubled accounting past -- THQI has arguably the best balance sheet in the video game business, and in CEO Farrell, certainly one of the most financially astute managers in the industry.
THQI is seeking to build a new RPG franchise with Quest 64 for N64 -- EIDSY has one of the best RPG development teams in the industry, resources that could certainly be leveraged by THQI in the N64 market (EIDSY's next gen RPG games are typically developed for Sony's Playstation, so the combined company would be a leading RPG publisher across the next gen spectrum).
EIDSY's financial performance is still somewhat lumpy, incurring losses in Q1 and Q2 and major gains in Q3 and Q4 -- THQI has enjoyed consistent profitability and growth over the last twelve quarters, and perhaps could lend more consistency to EIDSY's performance.
It would be interesting to actually sit down and map out the financial implications of this deal regarding valuations, share dilution, and combined EPS on a going forward basis. My guess is that any deal would be accretive to earnings given the extremely strong prospects for these companies and their potential synergies in sales & marketing, product development, and G&A.
Thoughts? |
