Swedes’ gaming split is far from a next-level fix

Coffee to go. Farväl, Embracer. $3 billion Swedish video game company announced on Monday that it will split itself into three separately listed entities, with remnant of current group eventually changing its name. It’s a logical move for exceptionally wide-ranging firm, which claims to have over 900 fully owned or controlled franchises. But it won’t necessarily create oodles of value for Embracer’s battered shareholders.

Embracer has h quite a ride. company’s share price soared above 130 Swedish crowns in 2021 as it gobbled up competitors and Covid-19 lockdowns put rocket fuel under video game industry. But stock tumbled over 40% last year amid stuttering sales and cancellation of a multibillion-dollar “development partnership”, prompting a rical restructuring and debt reduction programme.

surgery announced on Monday takes that one step furr: Asmodee, board game giant behind “Catan” that Embracer acquired in 2022 for around $3 billion, will be a separately listed entity, alongside peculiarly titled “Coffee Stain & Friends” – housing more mobile gaming and non-mainstream gaming assets – and “Middle-earth Enterprises & Friends”, a rump encompassing blockbuster console and PC games like those based on “Lord of Rings” and “Tomb Raider”.

re’s a familiar corporate finance logic to split. As CEO Lars Wingefors explained to analysts, investors will find it easier to choose between betting on steier businesses such as Embracer’s board games, and swinging for fences via Middle-earth division. latter’s blockbuster games cost much more to make but have a greater potential payoff, creating volatility that can act as a drag. Many of Embracer’s liabilities will now sit with steier Asmodee board games unit: a 900 million euro loan announced on Monday – and secured against Asmodee assets – will be used to help refinance current group’s debt.

optimists’ case would go like this. In 2023 Embracer’s mobile and niche gaming arm me $260 million of justed operating profit, while its Middle-earth business me $180 million. Putting both on a multiple of 12 – roughly what sector tres at – and se two alone would be worth over $5 billion including debt. That’s more than Embracer’s $4.5 billion enterprise value as of December, and doesn’t even include board games arm.

That vision is probably too cheery, though. Asmodee’s leverage will rise to 3.9 times justed EBITDA on a pro forma basis covering 12 months to December 2023 – probably just about manageable, but riskier and thus meriting a discount. What’s more, volatile earnings in blockbuster gaming are currently offset by steier business lines. This wouldn’t be case if it was separately listed, which might also merit a discount.

Shareholders representing more than half of capital and votes, including Saudi Arabia’s Savvy Games, have expressed approval for breakup plans. Embracer shares also rose 10% in early tring on Monday. Yet to get a lot more enthusiastic – and in particular to get anywhere near Embracer’s previous $8 billion-plus valuation – Wingefors will need to do more than reshuffling pack.