Sony in Talks to Acquire Elden Ring Maker Kadokawa

Sony is in advanced talks to acquire Kadokawa, the Japanese entertainment company behind the massively popular video game "Elden Ring," according to two sources familiar with the matter, as reported by Reuters.

The sources, who spoke on condition of anonymity because the discussions are private, indicated that a deal could be finalized in the coming weeks. News of the potential acquisition sent Kadokawa's shares soaring, closing up 23% at their daily limit on Monday. Kadokawa's market capitalization was approximately $2.7 billion before the news broke. Sony's shares also saw a modest increase, closing up 0.6%.

Sony, which already holds a 2% stake in Kadokawa and a stake in FromSoftware (the developer of "Elden Ring"), is seeking to expand its presence in the entertainment sector. "Elden Ring," a critically acclaimed fantasy action RPG developed in collaboration with "Game of Thrones" author George R.R. Martin, has sold over 25 million units worldwide and received widespread praise. The game's expansion, "Shadow of the Erdtree," also achieved significant success, selling 5 million units in its first three days of release.

Kadokawa, initially established as a publishing house in 1945, has diversified into various entertainment sectors, including video games, anime, and merchandise, boasting successful franchises such as "Re:Zero" and "Delicious in Dungeon."

Sony, known for its electronics and entertainment businesses, has been actively expanding its entertainment portfolio. "Loveable characters and intellectual property (IP) can live for 30, 50 or 100 years," said Sony CEO Kenichiro Yoshida last year. "That’s something we want to make investment in for sustainable growth." The company has successfully adapted its own game franchises into popular TV series, such as the HBO adaptation of "The Last of Us."

While Sony has a market valuation of around $114 billion, the company recently abandoned a $10 billion merger with Zee Entertainment Enterprises in January, citing unmet conditions. Kadokawa's operations have faced some recent challenges, including a cyberattack in June that resulted in a data breach and a disruption in business activities. Two years ago, Tsuguhiko Kadokawa, the son of the company's founder, resigned as chairman following an indictment on bribery charges related to the Tokyo Olympics.