In a May research note, Janco Partners' analyst Mike Hickey paints a grim picture of game publisher THQ Inc.'s [THQI] future, warning investors to examine the publisher's "shaky foundation" and questioning its portfolio of titles. The note comes a few days after reports that large French publisher Ubisoft Entertainment SA [EPA: UBI] is on the prowl for acquisitions.

Ubisoft CEO Yves Guillemot says that the French game publisher has €780 million ($1.2 billion) for acquisitions to further grow Ubisoft's business and move into other markets, including animation, according to translated reports of a story in French business daily Les Echos. No specific targets were reported, but Ubisoft's cash trove is close to what would be required to take out THQ. Additionally, if Hickey's warning is accurate, then THQ's shares are likely to fall, which would make it even more affordable for Ubisoft, especially if the dollar continues to remain weak against the Euro.

Ubisoft's and THQ's portfolios would mesh well. Ubisoft's game portfolio leans toward shooters and other military action titles thanks to the company's ownership of the Tom Clancy license. Meanwhile, THQ's main licenses include Disney Pixar titles, WWE wrestling games and Viacom Inc. [VIA] titles. The three brands provided about 70% of the company's revenue last year, and THQ indicates that sales from license titles will remain stagnant for the current fiscal year, forcing the company to rely more heavily on internally developed properties. Ominously for THQ, the company's second-largest licensed franchise, the WWE, has also filed suit in a move to reclaim its property.

Consequently, THQ is trying to develop with what Hickey warns might be limited success, its own titles, notably crime action series "Saints Row," which is often compared to Take-Two Interactive Software Inc.'s mega-hit "Grand Theft Auto" series. Hickey notes that even if the game garners a Metacritic score in the 80s, the expected episodic downloadable content for "GTA IV" could make "Saints Row 2" a hard sell when it arrives in October.

Meanwhile, Ubisoft has had enormous success cultivating an audience for internally developed properties. Its "Prince of Persia" series has drawn a huge following--large enough to warrant a Hollywood film starring Jake Gyllenhaal as the hero--and sales of new game "Assassin's Creed" reportedly exceeded the company's expectations. So under Ubisoft's ownership, perhaps "Saints Row" could flourish. -- Matthew Wurtzel

See June 3 story from GameDaily.com
See translated story from MCV
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