Embracer sell Borderlands devs Gearbox to Rockstar parent Take-Two for $460 million in shares

Embracer have announced that they're selling Borderlands developers Gearbox Entertainment to Take-Two Interactive, owners of 2K Games and GTA 6 developers Rockstar, for $460 million in Take-Two shares. Three Gearbox Software studios - the flagship studio in Texas, together with Gearbox Montréal and Gearbox Quebec - will change hands as part of the deal. Take-Two will also acquire the Borderlands and Tiny Tina's Wonderlands franchises, together with Homeworld, Risk of Rain, Brothers in Arms and Duke Nukem.

Embracer will keep and rename Gearbox Publishing San Francisco, previously known as Perfect World Entertainment. They're also hanging onto Cryptic Studios, who went through a round of layoffs in November, together with their MMOs Neverwinter Online and Star Trek Online. They're also clinging onto Borderlands 3 support studio Lost Boys Interactive, who went through a round of layoffs in January, plus 3D scanning and reconstruction outfit Captured Dimensions. Last but not least, they'll keep the publishing rights to the Remnant series, Hyper Light Breaker and "other notable unannounced game releases".

Once the deal is done, Embracer will sell their newly acquired Take-Two Interactive shares for an expected $300-330 million. Embracer acquired Gearbox in 2021 for $363 million in cash and Gearbox shares, with up to $1015 million to follow if Gearbox met certain targets in the following years.

The sale forms part of Embracer's on-going restructuring programme, which has seen them lay off many hundreds of developers, shutter beloved studios like Volition and cancel games in a bid to recoup debts following an infamous acquisition spree and the reported collapse of a Savvy Games investment deal last year. Earlier this month, Embracer sold one of their largest subsidiaries, Saber Interactive, to Beacon Interactive, a company founded by Saber's own original founder.

Speaking in an investor Q&A today, Embracer's CEO Lars Wingefors reiterated that the Swedish conglomerate's "restructuring" will conclude at the end of March, "and we are now looking into the future."

Wingefors also elaborated a bit on the reasoning behind the Gearbox sale. "I think Gearbox is one of the best developers in the world, but they had ambitions to entertain the world and grow their business significantly, both by publishing other game titles as well as creating more new titles on their own," he said.

"That was a very ambitious growth business plan over the coming six years we agreed into. They were in the middle of that, which meant we had a significant growth [capital expenditure], which created a negative growth cashflow. It also added a lot of business risk into the pipeline. Because yes, they had a very good success with Borderlands, but we have a number of titles that have not been released yet and proven yet."

He also pointed out that as the publisher of Borderlands via 2K Games, Take-Two has previously benefited more from the series’ success. "It’s also very important to remember that the value creation of Borderlands has almost always been with Take-Two Interactive. When looking into the future we would like to focus around IPs and products where we capture most of the economic upside, when we deploy capital and when we deploy our most valuable assets, meaning our games developers."

"So I think you also need to look at the deal [as] what’s our real economic upside on the Gearbox pipeline if we were to retain them?" Wingefors went on. "It’s fairly limited. For the economic upside, we’re really [relying] on the success of the remaining new IPs and other pipelines, that were unknown to us, that also were very high business risk to complete.

"It’s also a fact that North American game developers are significantly higher [paid] than the rest of the world and [that] has increased in the past years, meaning that if you do triple-A game development in North America, you really need to make sure that the investments you’re making are really on the top-end IPs, to have a manageable business risk."

It's bizarre and somewhat unpleasant to think of Embracer "looking to the future" given that they have spent the past year torching livelihoods. Good luck and well done, I guess, to Gearbox for slipping the noose.