Eidos mulls, Elevation moans, SCi sits tight

Elevation Partners' John Riccitiello yesterday fired the first volley in what could turn into a war of words.

The warring factions? Riccitiello's billion-dollar-backed private equity firm Elevation Partners, based in Silicon Valley, and UK-based game developer and publisher SCi. Both companies have tendered offers to acquire the ailing game publisher Eidos.

While Riccitiello's Elevation Partners was first to put its bid on the table, offering to buy Eidos via an all-cash offer of $133 million, SCi has presented a slightly different offer--a stock swap that would likely see more of the current Eidos management remain on board.

Hoping to sway the Eidos board of directors--including chairman John van Kuffeler and CEO Mike McGarvey--to its camp, Riccitiello yesterday delivered a mildly menacing public statement addressing SCi's weaknesses. "While SCi is a successful company, it has little experience of integrating larger businesses, of running a major international video games company, or in managing significant intellectual properties," he said in the statement.

He then drove home his point: the SCi offer is a recipe for disaster. "Eidos shareholders should not underestimate the demands of, and risk involved with, combining Eidos with SCi," said Riccitiello, which is no empty provocation. "The fact is," says Paul Heydon, managing director of Unity Capital, "John Riccitello built up tremendous value for Electronic Arts while he was there, and he clearly knows how to build value in the video game sector."

Riccitello's theory rests on the average Metacritic.com rating of SCi's games versus those of Eidos. SCi's average rating is 63, with no game breaking the 75 threshold. Eidos, on the other hand (according to Elevation), has 39 games with a Metacritic rating of 75 or above. "SCi's development track record is limited to a single major franchise and it does not have a history of publishing highly rated games," the statement went on to say.

Heydon sees one card Elevation could play to give its hand more weight. "I think that if they take the view that they do want the business but don't want to pay anymore cash up front, then it may be worth considering giving current shareholders of Eidos a small stake in the new entity to give them some upside."

Eidos' reaction to the Riccitiello statement? A calculated wait and see.

This morning in London, Eidos issued a statement advising investors to "take no action."

"Since the relevant announcements," the statement reads in part, "the Board continues to evaluate the merits of the certain value represented by the Elevation cash offer contrasted with the greater, but less certain, current value of the SCi paper offer. The Board intends to await further clarification in relation to each offer and to take account of any further developments before recommending a final course of action which will be communicated to shareholders in due course."

Analysts familiar with negotiations such as these say this is likely to be a weekend of heavy lobbying by both camps, SCi and Elevation.