Eidos shareholders' worst fears were realised yesterday when the beleaguered computer games company confirmed that its long-running takeover talks had collapsed.
Infogrames of France had indicated in June that it had been prepared to make an offer for the firm best-known for its Lara Croft Tomb Raider franchise after successive profit warnings that had shattered the share price of the British firm.
Almost four months later, the directors of Eidos said it had found the level of the all-share offer unacceptable and that many of the leading City investors with shares in the company were not permitted to swap them for shares in overseas companies.
Eidos shares slumped 13% to 255p, their lowest level since March 1999.
Analysts believe that the state of the computer games market is so dire that Infogrames, Europe's largest computer games company, is under no pressure to strike a deal now but will probably return to the negotiating table in the first half of next year.
"The French don't need Eidos at the moment, they can just let the shares slip down further and then pick the company up at a bargain price," one analyst said.
Confirmation that the talks have ended came three days after Jeremy Lewis, Eidos's chief financial officer and one of its leading dealmakers, quit the firm to "pursue other interests". Yesterday's announcement compounds a miserable year on the market for Eidos. In 1999 its shares were some of the best-performing on the market, trading at a peak of around £12 that valued Eidos at more than £1bn. Based on last night's close, Eidos is now valued at £280m.
Mr McGarvey insisted that Eidos would be able to trade out of its trough thanks to a strong list of forthcoming releases and anticipation of the release of Sony's PlayStation 2 console.
"We never put this company up for sale, we were merely reacting to a bid from a third party", he said. "We will return to our strategy of managing the company's growth and our employees are committed to that."
Eidos is now expected to launch a charm offensive on the City in an effort to persuade it that the company can survive as an independent entity.
It has just released a game based on the TV show "Who wants to be a millionaire?" and in the next few months has products linked to the films Chicken Run and 102 Dalmations.
The collapse of talks will be a blow to both Eidos directors and shareholders. Chief executive Charles Cornwall is thought to have been looking for an exit from the firm to concentrate on his burgeoning media and internet interests in the US. He is expected to take a more back seat role as Mr McGarvey continues to run the company on a day-to-day basis. Institutional investors have made no secret of the fact that they would like the company to be sold.
US investment bank Morgan Stanley was brought in to kick-start the sale process but despite its efforts has been unable to find a bidder brave enough to buy the Wimbledon company.
Electronic Arts, Havas Entertainment, Microsoft and News Corporation were all rumoured as possible buyers for Eidos but declined to bid.
Analysts say that Eidos shares should recover after the introduction of PlayStation 2 and other new consoles. They say that the content Eidos owns is in demand from a growing and wealthy market.
