Copyright 2000

[ July 23rd 2000 ]

Infogrames Entertainment, the French software group, is pressing ahead with plans to acquire UK computer games group Eidos despite the sharp fall in Infogrames' share price after news of the proposals leaked two weeks ago. A deal expected to value the creator of virtual cyber-heroine Lara Croft at up to £700m ($1.06bn) has reached the final stages of talks and could be completed within weeks, though it could still fall through over valuation and management issues. Other software groups, including Ubi Soft, have approached Eidos.

Infogrames is understood to have offered an all-share deal, valuing Eidos shares at between 600p and 700p. Eidos shares closed at 491p on Friday, valuing the loss-making company at £512m, while shares in Infogrames closed at E26.20. Infogrames recently raised E350m for acquisitions via a convertible bond issue. The bond was underwritten by Lazard, Infogrames' advisers, JP Morgan and Societe Generale.

The Eidos acquisition would be Infogrames' largest. Charles Cornwall, Eidos chief executive and founder, will now seek to persuade institutions that the deal makes sense. A combined Infogrames and Eidos would be Europe's biggest computer software publishing company, with annual turnover of more than £1bn.

The two companies are expected to argue that a merger would allow cost savings of between £50m and £100m. Most would come from cutting staff in areas of overlap. One adviser close to the transaction said: "A merger between Infogrames and Eidos could provide a retailer with the entire games remit both in the UK and the US." Mr Cornwall is not expected to stay with the merged company, according to people close to the transaction.

Day-to-day responsibilities would be passed to Jeremy Heath-Smith, Eidos's head of development. Mr Heath-Smith was paid a bonus of £4m linked to the completion of the latest version of Tomb Raider, the Lara Croft game, which was released at Christmas. Insiders are now indicating that a similar bonus-related scheme is being worked out as part of Infogrames' takeover offer. Eidos is advised by Dresdner Kleinwort Benson and Morgan Stanley Dean Witter.

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