Can Tomb Raider's owner dodge the grave?

When the blockbuster computer games dried up, SCI's 'too optimistic' chief lost her way – and then she lost her job. Lauren Mills reports

Property tycoon Robert Tchenguiz must rue the day he bought into SCI Entertainment, Britain's biggest computer game company and owner of Tomb Raider's Lara Croft.

Tchenguiz built a 22 per cent stake in SCI for between 480p and 500p a share towards the end of 2005, and he is said to have become very close to the company's former management – chief executive Jane Cavanagh and her husband, the managing director Bill Ennis. But the management team has now been ousted and a share slide means he is sitting on a £40m loss.

SCI is reeling after a string of profit warnings and failed takeover talks. That it should be in such dire straits after the industry's biggest-ever Christmas is puzzling, but nevertheless it is fighting a bloodier battle for survival than the star of Tomb Raider ever encountered. And if a review of the business, due to be announced next month, fails to lead to a revival in SCI's flagging fortunes, the new management may be forced to admit defeat.

In the early days, not long after Ms Cavanagh founded the company in 1988, SCI tried its hand at developing games, which were far less sophisticated than today's products. But its endeavours were unsuccessful, so production was closed down.

This was quickly forgotten when, in May 2005, SCI acquired Eidos Group to get its hands on Lara Croft and the fabulously successful Tomb Raider game.

"Eidos was a really good deal. To begin with, SCI looked like heroes," says a person familiar with the situation. Sales and profits were booming and the shares soared to a 610p all-time high.

But the fundamentals of the computer games sector were changing. Gone were the days when companies with lots of products were guaranteed to do well. "Now you needed to have a hit," recalls an industry expert.

The trouble was, SCI had no more hits up its sleeve. And given that it can take two years to develop a blockbuster, the com-pany looked likely to be heading for a fall. Other issues were brewing too, and with the shares still heading north, Ms Cavanagh started pondering a sale of the business. Mr Tchenguiz is thought to have expressed interest at around 750p a share, which would have netted her £30m for her 5.6 per cent stake. Though a bid from Mr Tchenguiz didn't materialise, Ms Cavanagh remained convinced she could find a willing buyer for the business – but her quest failed.

Industry sources say she had "too optimistic a view of value", which meant the prospects of a takeover were unrealistic. Critics accused her of wanting a price the market could not bear and the underlying performance of the company could not justify.

Ms Cavanagh was ousted from the firm on 18 January. SCI had already warned earlier this month that a delay to the next Lara Croft game was expected to lead to a full-year loss. It also said a second round of bid talks had failed. Names in the frame were said to have include Ubisoft of France and Time Warner, which has a 10 per cent stake in SCI.

Meanwhile, Charles Denton, the former chief of toiletries firm Molton Brown, has built up a 1 per cent stake in the firm because he thinks it is undervalued. Friends believe he may try to secure a seat on the board.

For the moment, though, analysts and investors are anxious to hear what SCI's new boss will propose for the business. Insiders believe the company will sell off its publishing division to concentrate on the development of blockbuster games.

Tim Ryan, the City PR man turned chairman, presided over the management clearout, promoting finance director Phil Rogers to chief executive and appointing industry veteran Jürgen Goeldner interim chief operating officer. Mr Ryan says: "We have effected change to get the company back on track. Our task is to create a plan that makes SCI the most effective and productive business we can."

"There is a good company in there," says a source. "They should focus on being a super developer – then they would be worth a lot more than they are now."