What now for SCI?

Capital raising

The first priority for Eidos is to fill the working capital hole that has been identified. The company has announced that it has received proposals from potential partners, and analysts have speculated that this might be a corporate investor. SCi will report on the working capital situation, and the results of its strategic review, with its interim results announcement at the end of this month. The company has a range of options it could consider.

Close or sell its publishing business

A radical solution involves Eidos admitting that it does not have the scale to be a global publisher. It could close down publishing and focus on development, conducting a bidding war amongst the publishing majors for the rights to publish Tomb Raider, Hitman and other key IP. Eidos would be following the route envisaged by Pandemic-Bioware or Foundation 9 of becoming a powerhouse of IP, in the same way that Pixar did for the film industry. Tim Ryan, SCi chairman, has said that there would be no sacred cows” in the root and branch review, including a possible sale of the publishing business.

A trade sale

Eidos still has some valuable assets. Tomb Raider and Hitman are triple-A titles, while the company has other intellectual properties ranging from Just Cause and Kane & Lynch to Championship Manager and Deus Ex. However, the company has been the subject of bid speculation for so long that everyone who might be interested has had a chance to look at the company in detail. Since most acquirors would only want part of the business (mainly the IP and certain territorial operations), the price is likely to be significantly lower than the half a billion pounds valuation implied by Time Warner’s investment.

Management Buy-Out

Taking Eidos private seems highly unlikely. MBOs require a company to take on a large amount of debt, something which is extremely difficult for all games companies. With few physical assets, a volatile market segment and an extremely poor track record for the sector as a whole, few banks will lend. With the continuing credit squeeze and contagion of fear in the financial markets, an MBO would be extremely difficult to pull off.

Breaking up

Another option would be to dismember the group. The Board could decide to seek bidders for as many pieces of Eidos as were attractive to maximise value. Homes could be found for Crystal Dynamics and IO. The New Media division has been successful and is further advanced than at many publishers. Eidos’s back catalogue contains some gems, although historically IP has typically only been saleable once a company is in administration, or very close to it. In the event that the working capital gap cannot be filled, this may be the best way of maximising shareholder value.