What the Acquisition of Gearbox Entertainment Means for Take-Two Interactive

Take-Two's Acquisition of Gearbox Entertainment

Two of the video game industry's busiest deal makers just struck a $460 million accord. Here's what Take-Two and Embracer investors need to know. The video game industry is always in motion. Popular game franchises and successful developer studios change hands all the time, and two of the most energetic movers and shakers in recent years just struck another deal.

A Lopsided Deal?

The Gearbox deal has a curious structure. Embracer is parting ways with the main Gearbox studios in Canada and Texas, along with hit titles in the Borderlands, Duke Nukem, Brothers In Arms, and Tiny Tina's Wonderlands game worlds. That's about two-thirds of Gearbox, in terms of employee headcount and the book value of games currently under development.

But Embracer is holding on to a studio in San Francisco, formerly known as Perfect World Entertainment, and a handful of smaller groups. Perfect World manages massive multiplayer online (MMO) games under the Neverwinter, Star Trek Online, and Champions Online franchises.

What Gearbox Means to Take-Two Interactive

I'm not saying that Take-Two Interactive is getting swindled here. The incoming Gearbox projects may not be profitable at the moment, but you're looking at a vibrant collection of valuable properties. The core Borderlands games have sold more than 77 million copies so far, with another title under active development. The Duke Nukem series also comes with unit sales measured by the millions.

Embracer's Strategic Divestiture: A Path to Recovery?

I can only applaud the cash flow-boosting outcome of the Take-Two deal. Embracer's stock rose more than 20% this week as investors embraced the business simplification and its $460 million price tag. But shares are still changing hands at a rock-bottom 0.7 times sales or 0.5 times book value -- both metrics standing far below their three-year averages.