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Mergers take gaming industry to next level: After Call of Duty maker is snapped up in a £50bn deal, insiders bet on a wave of takeovers










The £50.6billion acquisition by Microsoft of Call of Duty maker Activision Blizzard has sent shock waves through the computer games industry.

Shares in Japanese conglomerate Sony plunged by over 12 per cent amid fears the deal could threaten its dominance of the sector.

However, shares in other firms surged on hopes they could ride the wave of consolidation – as buyers or targets.

Explosive: Shares in Grand Theft Auto maker Take-Two have soared 9.2% while AIM-listed group Frontier Developments has gained 6.6%

Explosive: Shares in Grand Theft Auto maker Take-Two have soared 9.2% while AIM-listed group Frontier Developments has gained 6.6%

Shares in Activision rival Electronic Arts are up 5.5 per cent since the deal, while Grand Theft Auto maker Take-Two Interactive rose 9.2 per cent and AIM-listed group Frontier Developments 6.6 per cent.

French developer Ubisoft is up 15 per cent since the takeover was unveiled on Tuesday. The merger, due to complete next year, is the largest ever in the sector and comes amid a scramble for dominance.

It will make Microsoft the world’s third-largest computer games firm after Sony and China’s Tencent, and provide a massive leg-up for Microsoft’s Xbox gaming consoles as well as its Game Pass subscription service, which offers players a library of games in a similar manner to the way people watch films and TV shows through Netflix.

The strengthening of Xbox is a challenge for Sony, which leads the market with its PlayStation console. The swoop on Activision Blizzard comes as takeovers sweep across the global video game market.

Earlier this month, Grand Theft Auto maker Take-Two Interactive snapped up Zynga, the maker of Farmville, following Microsoft’s purchase of video game studio Bethesda, the owner of franchises including Doom and Wolfenstein last year.

In the UK, Southam-based racing game developer Codemasters succumbed to a swoop by Electronic Arts, followed by Sheffield’s Sumo Group being bought out by Tencent.

And London-listed Team 17 has snapped up German simulation game developer Astragon Entertainment for £83million.

The flurry of activity follows a boom in demand for computer games during the pandemic.

The swoop on Activision Blizzard is the largest takeover so far in an ongoing wave of mergers & acquisitions that have swept across the global video game market

The swoop on Activision Blizzard is the largest takeover so far in an ongoing wave of mergers & acquisitions that have swept across the global video game market

New audiences, and the profits that followed, shone a light on an industry that had previously attracted little interest. 

‘There is a lot of investment going in. It’s got a wide spread of demographics. It has all these attractive qualities that were highlighted and increased by the pandemic,’ said Katie Cousins, an analyst at Shore Capital.

‘People began to realise how valuable these titles can be. You have a whole community with friends meeting up in games in the same way you might go down to a football pitch and play. That social and community environment is very valuable.’

Activision Blizzard owns several titles that boast millions of players. Its Call of Duty is one of the world’s best-selling computer games, having sold over 400m copies since 2003.

Online multiplayer fantasy game World of Warcraft has around 6.1m monthly players.

Cousins said these gaming communities can spawn other forms of media including books and online series, but companies can only profit if they control the intellectual property (IP).

‘That’s why there has been a rush to collect these IPs,’ Cousins said, adding that for most firms it is easier to buy games that are already popular than create new ones.

The scramble echoes a flurry of deals in the media sector such as Disney’s £3billion purchase of the Star Wars franchise from creator George Lucas in 2012 and Netflix’s acquisition of the rights to the works of children’s author Roald Dahl for £370million last year.

It comes amid the rise of the ‘metaverse’, a virtual reality environment that tech moguls such as Facebook founder Mark Zuckerberg believe will usher in a new age of online interaction. 

Microsoft boss Satya Nadella said computer games would ‘play a key role’ in the development of metaverse platforms’.

The spree seems set to continue, with more UK firms in the crosshairs. AIM-listed Frontier Developments, whose games include the Jurassic Park franchise, is thought by some to be a target due to its successful gaming IPs and a fall in the share price. The stock is down 34 per cent in six months. Tencent has been mulled as a potential buyer.

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Britain’s  biggest internet companies have been targeted by stock market traders in a £1billion bet their share price will fall. 

Fashion giant Asos is the latest to find itself in the firing line of short-sellers – who use financial contracts to borrow stock in order to gain if the share price falls – with nearly 8 per cent of its stock now on loan, according to research. 

The sudden increase in the number of short positions at Asos, which rose by a third in recent weeks, emerges amid a rout in technology stocks. 

Other stocks that have been targeted include Ocado – the largest short position by value at £703million, or 6 per cent of its stock – as well as Boohoo, AO World and Made.com. 

Squeezed: Asos faces supply issues and more returns with parties cancelled

Squeezed: Asos faces supply issues and more returns with parties cancelled

Deliveroo has also been dumped by investors. Last week its shares dipped below £1.95 – half its £3.90 flotation price of just nine months ago – though the size of short positions in Deliveroo is low at less than 0.2 per cent. 

Tech firms around the world, including Britain’s online shopping success stories, found favour during the pandemic. 

But Wall Street’s tech-heavy Nasdaq share index took a hammering last week in an investor rout that rocked markets

The big sell-off even hit stock-market darlings Apple, Amazon and Tesla. Energy companies and banks have gained: businesses that are regarded as less sensitive to interest rate rises, as the Federal Reserve dials down its emergency economic help in the US. 

It follows revelations in The Mail on Sunday last weekend that hedge funds and other traders had built up record short positions in The Hut Group, the owner of the LookFantastic and MyProtein brands. 

THG’s shares subsequently plummeted 10 per cent on Tuesday, the first trading day after the weekend, and are struggling to bounce back. 

In late September the number of Asos shares on loan was less than 1 per cent. The share price has dwindled 34 per cent since then. 

Though Asos shares have not fallen significantly in recent days, the data suggests an increasing number of traders believe they may fall further. 

Short-selling is controversial because critics say it can be used to engineer a quick drop in a share price. 

But short traders and research companies are increasingly seen as an indicator that there are fundamental issues with management strategy, a company’s prospects – or that a company is overvalued for other reasons. 

In the UK, the Financial Conduct Authority publishes individual short positions the first time they have reached more than 0.5 per cent of company stock at the end of a trading day. However, because only such big positions are declared, it is hard to pinpoint the exact volume of short positions, other than looking at figures for loaned stock. 

So while FCA data currently records that just one hedge fund, Marshall Wace, holds 1.5 per cent of Asos shares, the financial information provider IHS says its figure of almost 8 per cent from lending data provides a ‘close proxy’ for total short-selling volumes at the end of each trading day. 

Sources said traders believe Asos, a favourite among Britain’s fashion-conscious 20 and 30-somethings, faces a squeeze despite assurances from the board in November that it could double profit margins long-term as sales rise. 

It is without a chief executive after Nick Beighton left with immediate effect in October, adding to the uncertainty. 

Its rival Boohoo’s shares have fallen too – by 58 per cent since September. Last month, Boohoo halved sales growth forecasts for the year to February 28, 2022, and slashed profit guidance. 

The cost of materials and shipping has soared, more items have been returned than before the pandemic with parties cancelled due to Covid scares – especially last month – and competition from Chinese internet shop Shein grows. By contrast the fortunes of physical shops have rebounded. 

Tesco shares are at their highest since before an accounting scandal in 2014, while Marks & Spencer’s share price has soared to levels not seen for almost three years.

At just 0.23 per cent, the number of M&S shares on loan also appears to suggest short-selling traders believe its turnaround is bearing fruit. 

This week will see market updates from Marks & Spencer, Sainsbury’s, Tesco, JD Sports and Asos, among others. WH Smith, AO World, SuperGroup and Hotel Chocolat will report the following week. 

Next on Thursday said trading had been better than expected and predicted it would reap record profits this year. 

It said full-price sales were 20 per cent higher in the festive period than the comparative weeks in 2019, before the pandemic began.

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