Why Embracer Group Stock Jumped 10% On Monday Morning

Shares of Embracer Group (OTC: THQQ.F) rose as much as 9.9% on Monday morning. The Sweden-based conglomerate of video game studios took a sharp strategic turn today. In a complicated bundle of transactions and corporate actions, Embracer is splitting into three separate companies, all publicly traded on the Nasdaq Stockholm exchange.

What the reformed Embracer Group looks like

First, the Asmodee Group broke away from Embracer along with a new 900 million euro (roughly $960 million) financing deal. This new company controls 23 game development studios and more than 300 game titles, including Ticket to Ride, Catan, and Exploding Kittens. Most of the games in this business involve converted board games, card games, and role-playing games.

Next, Middle-earth Enterprises & Friends split apart from Coffee Stain & Friends, creating two more publicly traded companies. Coffee Stain holds many smaller development teams. The studio controls free-to-play titles such as Sudoku.com, Neverwinter, and Star Trek Online, along with premium mobile and console games like Goat Simulator 3 and Deep Rock Galactic.

The core of Middle-earth Enterprises is, as expected, the intellectual property Embracer acquired from the Tolkien estate in 2022. With 12 development teams, this group also manages the Tomb Raider franchise and other names in the "strategic franchise" category.

The new companies come with similar annual sales and profits. However, the Asmodee Group runs a leaner business with lower capital expenses than its corporate siblings, and will take on most of the Embracer Group's financial debt.

All three groups will keep their headquarters in Karlstad, Sweden. Each company gets a new CEO, though Embracer's founder and current CEO, Lars Wingefors, will remain close to the decision-making and strategic leadership team.

Are the new Embracer stocks a buy, sell, or hold today?

"There is not one way to do business, but some business models are more similar than others," Wingefors said in a letter to shareholders. "All the companies have bright futures ahead, by perfecting what is working for each of them, and by continuing to cooperate when it makes sense."

The split marks the end of a difficult strategic transformation. One potentially game-changing financing partnership fell apart last summer, followed by some asset sales.

But this is the end of a corporate makeover that began in 2022. Current Embracer shareholders like yours truly will get the full set of Asmodee, Middle-earth, and Coffee Stain stocks in the form of dividends. I'll hold on to all three for at least a couple of quarters, and prospective Embracer investors might want to wait a while before buying anything. It remains to be seen how the three new entities will perform from a financial point of view.

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Anders Bylund has positions in Embracer Group Ab (publ). The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.