End of the road for Eidos?

EVEN Lara Croft could struggle to get Eidos out of this one. The future of the buxom side-armed computer games star hangs in the balance today after software games developer Eidos revealed that it had received a preliminary approach that could lead to a bid - and even this was subject to a condition that the Eidos could not be sure would be satisfied.

The nature of this condition was not divulged today but is believed to relate to the would-be bidder rather than Eidos itself. And in the absence of other bids, and in light of the company's deteriorating cash position, Eidos still said it was still likely to recommend the possible cash offer of 53p a share in due course.

This would value Eidos at just £75m, compared with a market value of £260m last year.

But the company's willingness to agree to the bid reflects the dire extent of its financial difficulties. This was underlined by news of a new banking facility with Royal Bank of Scotland that gives it just two weeks to find fresh investment if a bid is not forthcoming in that time.

The company announced today that it had agreed a new short-term working capital facility with RBS but that the bank has given it until 25 March either to announce a formal bid for the company or to find alternative long-term funding. If Eidos isn't able to raise extra funds the bank could order a break-up of the business and the sale of its assets. City sources indicated that Eidos still had other financial avenues to explore if no bid materialises in the next fortnight.

Shares in Eidos recovered some ground this morning after a disastrous 30% slump from 58p to 40½p yesterday but then dropped back down again. At midday the stock was trading at just 39p, giving the company a market value of just £55m. The fall yestereday came amid frenzied speculation that the company would breach its banking covenants or that its six month results would be even worse than it predicted at the time of January's profit warning.

This morning the shares were back up at 57p as it revealed it had received the proposal more than a week ago. The announcement was carefully worded and enquiries for more detail were rebuffed by the company's City PR advisers ? the statement today was not made with the consent of the other party.

Eidos' interim results, which follow a detailed strategic review, appear to confirm that the company is nearing the end of the road.

Only a substantial injection of long-term funding from a new investor or a complete takeover appears likely to save the day.

Eidos had said it was relying on a strong second half to make up for the deterioration in trading during the first six months of the year. Today, however, chairman John van Kuffeler admitted in a prepared statement that the delay of other new releases to 2006 would further impact the company's financial prospects.

He added: 'In the absence of a successful conclusion to the strategic review, the outlook for Eidos as an independent company remains challenging.

'The strategic decision to defer the release of certain titles to the next financial year will have a significant impact on the expected results for the current financial year as a whole.'

The company plunged deeply into the red during the six-month period, recording a £29m loss against a £6.2m profit this time last year. New releases during the first half of the year included ShellShock, Nam 67, Backyard Wrestling 2, There goes the Neighborhood, Crash & Burn and Get On Da Mic.