During its quarterly earnings report, Embracer Group revealed that it had been notified this week that a $2 billion partnership that was planned would no longer be going through, sending stock prices plummeting.
What happened to Embracer Group’s deal?
The news came as a bit of a surprise during the report, with Embracer — who owns companies like THQ Nordic and Gearbox and has the entertainment rights to The Lord of the Rings — being shockingly transparent in the news.
According to the company, a deal was set for more than $2 billion and would have helped the company do “a catch-up payment at closing for already capitalized costs for a range of large-budget games.”
“Late last night, we were informed that one major strategic partnership that has been negotiated for seven months will not materialise,” said CEO Lars Wingefors in the earnings report (via VGC).
According to Wingefors, the deal was so massive that “several hundred people” were engaged with it on both sides, and things seemed ready to be finalized this week. However, things fell through at the last minute, which came “unexpected” to the company.
“The specific deal included more than USD 2 billion in contracted development revenue over a period of six years,” said Wingefors. “The deal would have enabled a catch-up payment at closing for already capitalized costs for a range of large-budget games, but also notably improved medium-to-long-term profit and cash flow predictability for the duration of the game development projects. The transaction had many of the highest rated global advisories onboard with several hundred people engaged on both sides. All documentation was finalized and ready to go as of yesterday. We asked for the execution of the agreement before our Q4 announcement. However late last night we received a negative outcome from the counterparty. This decision was unexpected to the management and the Board of Directors of Embracer.”
As a result of the sudden falling through of the partnership, the company’s stock took a massive hit, with shares of Embracer Group down more than 40% as of this morning. The company also said that it would be slashing its earnings forecast.
For the current business year ending in March 2024, Embracer lowered its earnings forecast due to various game delays and other factors. The forecast lowered from a range of $965 million-$1.3 billion down to $655 million-$840 million.
“It has been a challenging year, adversely impacted by game delays, weaker consumer demand and lackluster reception for certain notable releases,” said Wingefors.
