Small Talk: SCi in need of hero to avoid 'game over' screen

Click to follow
The Independent Online

SCi International looks like it needs a hero after a week that its bid talks collapsed, it warned on profits and its share price plunged. Unfortunately the computer game developer couldn't even look to its very own Lara Croft as it also had to admit that the latest instalment of its lucrative games franchise had been delayed.

The beleaguered computer game company lost over half of its value on Friday to end at 62p. Even more incredibly the stock was worth 520p less than six months ago, and suddenly the management's position is looking shakier than ever.

The collapse was sparked by a trading statement saying it had called off bid talks after four months of negotiations as it had failed to receive a firm offer. The board said it "no longer believes that a sale of the company for its full value is likely to be achieved at the current time".

The group, which also created the successful Hitman franchise, did say that certain commercial and strategic opportunities had emerged from the discussions which it is continuing to explore, but shareholder unrest is building.

This comes four years after its acquisition of Eidos, and some say the situation feels eerily familiar. Simon Davies, the analyst who covers SCi at ABN Amro, said: "It looks like a case of history repeating itself, with Eidos going through a very similar process (failed negotiations, and massive slippage on Tomb Raider) before its acquisition by SCI at a knock-down price in 2005. Management credibility is at a similarly low level."

The companies in the latest round of talks were never named, but there has been a long list of potential suitors for SCi touted inthe market. These have included Midway Games of the US, China's CDC, Electronic Arts, THQ, Warner Brothers, which already owns a 10 per cent stake, and Evolution Partners, which was a competitorfor Eidos. Another candidate, Ubisoft, recently came out with a statement saying it was not interested at any price.

Mr Davies said the surprising thing about the company's inability to find a bidder was the background of consolidation in the sector at the time. Vivendi and Activision have combined their games divisions,while Electronic Arts made two significant acquisitions.

Prospects are looking "bleak" in the wake of Friday's train wreck, analysts said. Yet some are predicting that rather than hitting the "Game Over" screen, a new bidder will emerge before long. The KBC Peel Hunt analyst Robert Brent said the company will be approached again "given the inevitable consolidation of digital intellectual property, particularly old and new media".

There was further bad news for the group in its trading update, as it warned of an operating loss for 2008 after it was forced to push back the release of the latest Lara Croft game, Tomb Raider: Underworld, into the fourth quarter. KBC Peel Hunt predicts that, in all, there would be £19m loss in earnings before interest and taxation this year.

Mr Davies said: "SCihas suffered because it has failed to get its big products out on time, while it has built a cost base without building up revenues at a similar level."

The company admits it is unlikely to get back up to the 500p levels in the short term, and it needs funding – variously estimated at between £30m and £40m. Until then, as Mr Brent said, there will be "significant volatility in the shares until confidence is restored."

Mr Davies said: "The business should have significant value to existing publishers (the Hitman and Tomb Raider franchises alone should be worth over £100m), but there would be a number of studios and products within the group that would be less attractive. As such, the shares are probably too cheap, but any potential buyer will probably want to wait for any evidence of further financial distress."

Despite solid trading at Christmas, the dark clouds continue to build; it remains to be seen whether the chief executive, Jane Cavanagh, can ride out the storm. Mr Davies concluded: "It was a poor 2007, but 2008 will be considerably worse."

TurfTrax to debut

Those punters keen on a flutter will note the arrival of Turftrax to the Alternative Investment Market with interest this week. The horse-racing technology group debuts on Wednesday following a placing that raised £3.2m and values the whole business at £18m.

The group has developed systems to originate and distribute data to and from the horse-racing, betting and media industries. These include systems to monitor the position of horses during races and the measure of the going.

Its listing, carried out by Newland Stockbrokers, marks a step forward in the business. It is set to use the funds generated to invest in its tracking division and the development of a particular piece of kit.

Essentially the tracking division technology involves putting an electronic tag in a horse's saddle to monitor its position and performance during a race. TurfTrax hopes to use the information provided to launch a betting system in which punters can continue betting as the race unfolds,with the odds changing related to the position of the horses.

Whether the going is good or not in the current climate that has seen betting firms come under pressure will become clearer this week.