Partnership puts Warner in best position for acquisition

Warner Bros. partnership with SCi puts the company in the best position to make a full acquisition if things work out, says DFC Intelligence analyst David Cole.

"Warner does not have a major position in the game business and usually buying struggling companies in need of a turnaround is not a good strategy for building a new market position," he told GamesIndustry.biz.

"A minority investment and partnership is a chance to get a better foothold in the market without taking on a big potential downside. If things work out they would be in the best position to make a full acquisition."

Cole isn't quite sure how the arrangement will work out, noting that Warner has not been that strong at US distribution. However, he says the deal clearly shows Warner's confidence in Rogers' management.

Even so, it is unlikely that the partnership will satisfy Warner's ambitions in the games industry.

"I think what Warner has stated indicates they are looking for significantly more. This is really nothing for a company their size," hee said.

Cole thinks that the Eidos restructuring - reducing overhead and focusing on core franchises - was probably in line with Warner's vision, as the company is mainly interested in big franchises.

For SCi shareholders, anything that shows signs of life and the potential to build with a strategic partner is a positive sign, he says.

"SCi stock has been trading very low and an acquisition would be selling at the bottom - the exact opposite of the maxim 'buy low, sell high.' A partnership gives the company some funding and the chance to make a comeback on its own."

Whether SCi's stock will recover as a result is harder to predict.

"A lot of shareholder value has been lost so there may still be a wait and see attitude," said Cole.

"On the other hand, for many investors it could be right in line with the 'buy low, sell high' maxim."