Sega Sammy launches €706mn offer for Angry Birds maker Rovio

Sega Sammy, the Japanese gamesmaker behind the Sonic the Hedgehog franchise has launched a €706mn ($776mn) offer for Rovio Entertainment, the Finnish group that gave the world Angry Birds.

The €9.25 a share offer values the mobile games pioneer at almost 20 per cent below the price at which Rovio went public five and a half years ago, when it debuted with a market valuation of €896mn.

In a joint statement, Sega Sammy said it had based its bid on projections that the global gaming market would expand to $263.3bn by 2026. In particular, it said, the share of mobile gaming would grow to 56 per cent of the overall market.

Rovio’s share price jumped almost 18 per cent on Monday morning following the announcement.

Analysts said that Sega Sammy’s bid for Rovio was driven by its ambitions to build a “super game” along the lines of Fortnite or Minecraft that create large global communities of gamers.

Angry Birds, launched in 2009, involves catapulting colourful birds towards various structures. It became one of the most downloaded apps of all time, playing a critical role in bringing casual mobile gaming to the global mainstream, but setting an early high-water mark that Rovio has struggled to surpass.

Despite being consistently profitable, Rovio’s stock never fully recovered confidence among investors after a profit warning in early 2018, just a few months after its initial public offering.

Despite riding the early growth of iPhone gaming with Angry Birds, the company found itself on the wrong side of an industry-wide shift in business models from Rovio’s strategy of charging 99 cents upfront to download titles, towards online, free-to-play games supported by in-app purchasing.

Angry Birds became a prime example of efforts by games companies to expand the intellectual property of games beyond the confines of the games themselves.

The Angry Birds characters became the subject of comics, animation, films, toys and other media. Sega Sammy has similar experience with the expansion of its main games brand, Sonic the Hedgehog, whose adventures were turned into a 2020 Hollywood film.

At the height of the Angry Birds phenomenon, Rovio’s management spoke about the company’s evolution from a games company into something it believed could be central to popular culture and would take its inspiration from Coca-Cola.

David Gibson, a games analyst at MST Financial, said Rovio’s efforts to diversify had not met those sky-high ambitions.

Angry Birds game revenues are still 60-70 per cent of the business, so plans to expand beyond have not been as material as the company aimed. Rovio thought . . . it was no longer a games company, but it’s still a games company with 90 per cent of revenues from mobile games,” said Gibson.

In January, reports revealed that Rovio had received an $810mn offer from Israel-based Playtika, but the company said in March that those had ended, even as talks with other potential buyers continued.

In addition to the Rovio board’s support for Sega’s offer, the Japanese games company has received the irrevocable acceptance from shareholders who together hold a combined 49.1 per cent of the outstanding shares and votes in Rovio.

Sega Sammy’s efforts to strengthen its hand in mobile games development come as part of its traditional business is in steep decline.

The company is a significant producer of machines used in Japan’s pachinko industry — a vertical pinball game that has traditionally enabled a form of grey market gambling. The revenues and profits of pachinko remain high, but have been falling relentlessly for years as Japan’s population ages and shrinks, and as the industry fails to draw in younger players.

According to a 2020 industry report by Daikoku Denki, total sales of the Japanese pachinko industry shrank from ¥25.5tn in 2014 to ¥14.6tn in 2021, while gross profits fell from ¥3.9tn to ¥2.4tn over the same period.

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