Games Industry.biz 17:29 (BST)
23/04/2008

Following SCi's rejection of a recent offer made for the company by an unnamed suitor, Screen Digest analyst Ed Barton considers how the company's shareholders may react.

"SCi will be aware of the sentiments of its major shareholders," he told GamesIndustry.biz. "By refusing the offer one hopes it has justifiable confidence in the willingness of its shareholders to participate in a fundraising exercise."

The company said that it needed an extra GBP 50 million (USD 100 million) in working capital when it reported interim results. It now says that pursuing takeover negotiations will delay the fundraising exercise which is its priority.

"SCi admits it has 'significant short- to medium-term funding requirements' - presumably delaying the capital raising will see a deterioration in its financial position to the point where a prospective buyer would be incentivised to ensure negotiations took as long as possible, as well as squeezing more concessions for itself by attacking SCi's weakening negotiating position," Barton explained.

"If the requirement for funding is serious, SCi would be ill-advised to enter into merger or takeover negotiations with a third party until this is reconciled."

Barton said it is understandable that SCi would prefer to raise capital from new and existing shareholders rather than from a "shotgun negotiation" with a potential future owner.

Barton also downplayed reports that this recent offer came with a "significant premium" on the current share value.

"It's worth remembering that the 'substantial premium' in question is a premium on SCi's current share price which has sadly been eviscerated by the events of the recent past," he said. "SCi's current share price is around a tenth of what it was last July."

What happens next will largely depend upon SCi's shareholders.

"Their support is key both for the fundraising and for the period during which the current management team will execute its strategic plan," said Barton.

"If shareholders lose faith in management, then taking a bidder's money now becomes a viable option. Whether they are prepared to back Phil Rogers and his team depends largely on whether they have the patience for his plan to come to fruition."