Embracer Group Stocks Plummet Over 40% After Failed $2 Billion Partnership Deal

Embracer Group first made headlines in the MMO industry when it acquired Perfect World Entertainment’s western arm along with its subsidiary, Cryptic Studios. This gave the video game holding company access to several big-name MMOs, including Champion’s Online, Neverwinter, and Star Trek Online. Both PWE and Cryptic were later renamed and bundled under Gearbox Entertaintment as Gearbox Publishing.

More recently, the company made bigger waves when it teamed up with Amazon Game Studios to develop and release a new Lord of the Rings MMO. Embracer also owns the licensing rights for the Lord of the Rings franchise after it acquired Middle-earth Enterprises in 2022.

Embracer’s fortunes, however, took a turn for the worse as a “mega deal” with an undisclosed company fell through. According to the company’s Q4 2022 financial report, the $2 billion deal had been in the works since fall and would have been a “transformative” partnership that would set a “new benchmark” in the video game industry.

Embracer’s CEO Lars Wingefors revealed that the negotiations had taken longer than expected but were ready to be finalized as of yesterday. Regrettably, the other party backed out at the last minute, leaving Embracer reeling from the fallout.

In light of this development, Embracer has been forced to significantly revise its earnings forecast, anticipating a potential decrease of up to 50% over the next year. The company also acknowledged that game releases would be delayed as it works to reallocate its assets.

Unsurprisingly, the deal’s cancellation has had a significant impact on Embracer's stock value, which plummeted over 40% since the news came out. Wingefors, however, is optimistic that the company will continue to grow over the next two years, citing a massive portfolio of 130 studios, 850 IPs, and 200 games in development. As of now, the most pressing concern for the company is its decreased cash flow.

While it’s highly unlikely that the collapsed deal is connected to Embracer's partnership with Amazon, there’s speculation that the recent Lord of the Rings MMO announcement may have influenced the other party to reassess its position and withdraw from the deal. Wingefors himself confirmed that the failed partnership was the result of “other decisions” rather than problems with the partnership itself.

Only time will tell how the recent events will affect Embracer Group in the long run. For now, the MMO industry and investors alike are likely keeping a close watch on how the company will navigate the challenges ahead.

Brutal turn of events for Embracer Group (Tomb Raider, Lord of the Rings, Dead Island)

- $2 billion deal up in smoke
- stock down over 40%
- web Q&A with Embracer CEO is rough. The man seems shattered
- No indication of who the deal would have been withhttps://t.co/VkSpa1nTj0

— Stephen Totilo (@stephentotilo) May 24, 2023