Translation: Original comment published in Finnish on 9/30/2024 at 7:19 am EEST.

Tencent’s investment came as something of a surprise to us, and would suggest that Remedy may be funding most of the Condor project itself (we had assumed that a partner would be involved in funding the project). We believe that the terms of the loan are reasonable in the current market environment and that the resulting dilution is moderate. If a partner is added to Condor, the funds raised by the convertible bond will give the company even more leeway to self-publish both Control games and develop subsequent game projects. We will include the convertible bond in our next update.

Basic information on the convertible bond

The unsecured convertible bond of 15 MEUR carries an annual interest rate of 8%. Interest is capitalized annually at the end of the year, so the loan has no annual cash flow impact. The loan matures in 5 years from the date of drawdown if the conversion or early repayment option is not exercised.

The convertible bond is convertible into Remedy shares as of the third anniversary of the date of the drawdown. The conversion price is set at EUR 27.20, representing a premium of approximately 63.9% to Remedy's closing price on September 26, 2024. If the loan is eventually converted into shares, this will result in a moderate dilution of 5.98% of all shares. If Tencent does not exercise its conversion right, Remedy will also have the option to prepay the loan on or after the third anniversary of the date of the drawdown. This also requires that the volume-weighted average share price of Remedy exceeds 130% of the conversion price (i.e. at least EUR 35.36) for 20 consecutive trading days.

Convertible bond brings more financial flexibility

Less than a month ago, Remedy signed a collaboration agreement with Annapurna, under which Annapurna will fund 50% of Control 2's development budget (estimated at around 50 MEUR). At the end of Q2'24, Remedy's cash and cash equivalents amounted to 26.1 MEUR, of which slightly less than 10 MEUR is estimated to be used for the acquisition of Control rights. The proceeds from the convertible bond will provide the company with greater financial flexibility and the ability to allocate capital to game development and self-publishing. The company's financial position in the coming years will continue to be impacted by the potential partnering of the Condor project and the royalty income from Alan Wake 2, which we expect to begin accruing later this year.

Tencent's stake in Remedy has become very significant

Before the arrangement, Tencent already owned 14.8% of Remedy, which could increase to 20.8% after the conversion of the convertible bond. We believe the additional investment reflects Tencent's confidence in Remedy's long-term strategy, and the conversion price of the loan also reflects the expectation of long-term value creation. The increase in Tencent's stake also confirms, in our view, that Remedy will continue its journey as an independent public company for a long time to come, and that the likelihood of a speculated takeover is becoming less likely.