European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Electronic Arts agreed on 14 December a reported £945 mn cash counter-offer for Codemasters (604p per share) to disrupt Take-Two's £759 mn already accepted cash and shares offer.
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For an implied EV of £892.15 mn (Codemasters has £50.747 mn of net cash).
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The deal represents 7.4x EV/Fwd Revenue, 28.5x EV/Fwd EBITDA and 31.5x P/Fwd E.
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<li>The court meeting and the EGM are expected to be held on December 21, 2020. The transaction is expected to close in Q1 2021.</li>
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Codemasters shares went up by almost 20% to 640p, above the 604p offer price, suggesting market believes in the possibility of an increased bid by Take-Two. 
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Take-Two has $2.2 bn of net cash.
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No longer the main objective is to sell the largest number of consoles, but to accumulate the largest number of players. Electronic Arts is interested in the racing games business of Codemasters. The move feels defensive because Take-Two is one of its main rivals and many of Electronic Arts' franchises are weakening relative to leaders.
A deal with Electronic Arts would bring under the same umbrella EA's sports and driving games (FIFA soccer and Need for Speed franchises) and Codemasters’ racing simulators.
By using a blended average of the median multiples of EV/Fwd EBITDA and P/Fwd E, a valuation up to 720p per share could be justified, c. 10% upside to current levels (and 19% over EA's bid). Recommendation is LONG Codemasters, TP 720p.
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<li>an equity value of £1,098 mn (EV of £1,047 mn).</li>
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Codemasters shares closed at 658p on 16 December, c. 9% above EA's offer.
A shareholder meeting to consider the offer has been scheduled for next Monday.

Electronic Arts agreed on 14 December a reported £945 mn cash counter-offer for Codemasters (604p per share) to disrupt Take-Two's £759 mn already accepted cash and shares offer.


For an implied EV of £892.15 mn (Codemasters has £50.747 mn of net cash).


The deal represents 7.4x EV/Fwd Revenue, 28.5x EV/Fwd EBITDA and 31.5x P/Fwd E.

The court meeting and the EGM are expected to be held on December 21, 2020. The transaction is expected to close in Q1 2021.



Codemasters shares went up by almost 20% to 640p, above the 604p offer price, suggesting market believes in the possibility of an increased bid by Take-Two. 


Take-Two has $2.2 bn of net cash.


No longer the main objective is to sell the largest number of consoles, but to accumulate the largest number of players. Electronic Arts is interested in the racing games business of Codemasters. The move feels defensive because Take-Two is one of its main rivals and many of Electronic Arts' franchises are weakening relative to leaders.
A deal with Electronic Arts would bring under the same umbrella EA's sports and driving games (FIFA soccer and Need for Speed franchises) and Codemasters’ racing simulators.
By using a blended average of the median multiples of EV/Fwd EBITDA and P/Fwd E, a valuation up to 720p per share could be justified, c. 10% upside to current levels (and 19% over EA's bid). Recommendation is LONG Codemasters, TP 720p.

an equity value of £1,098 mn (EV of £1,047 mn).

Codemasters shares closed at 658p on 16 December, c. 9% above EA's offer.
A shareholder meeting to consider the offer has been scheduled for next Monday.

Electronic Arts' Disruptive Counter-Offer

United Kingdom

Codemasters is a British video game developer specializing in racing games and other interactive entertainment products. The company is known for creating popular franchises such as Formula 1, DIRT, GRID, and Colin McRae Rally. Founded in October 1986, Codemasters is headquartered in Southam, England.

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Codemasters (CDM LN)

Electronic Arts' Disruptive Counter-Offer

A bidding war is likely. A valuation up to 720p per share could be justified (c. 10% upside to current levels). Recommendation is LONG Codemasters.

Jesus Rodriguez Aguilar

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