When two well know names like Infogrames (parent of Atari) and Namco Bandai team up, the foundations of the gaming world tremble in anticipation and gamers nervously await the fallout. Well this isn’t really one of those types of team-ups. But it’s still huge.

Infogrames Entertainment (“Infogrames”) and Namco Bandai Games Europe S.A.S. (“Namco Bandai”) today announced that they have signed a binding letter of intent establishing a strategic partnership between Infogrames and Namco Bandai. Under the terms of the agreement, Namco Bandai would acquire a 34% stake in Infogrames’ European and Asian distribution operations, with the remaining stake being retained by Infogrames.

Under the terms of the transaction, Infogrames has agreed to regroup its distribution operations into a standalone entity with exclusive physical packaged-goods distribution rights for video games produced by Namco Bandai and Infogrames within Infogrames’ European and Asian territories. Infogrames would continue to invest in, develop and publish interactive video games in a packaged format or online as one of its core activities. The newly formed entity will benefit from the extensive distribution network of Infogrames, with global reach and localized presence, while filling its pipeline from the entire range of products created by Namco Bandai and Infogrames, as well as other publishers.

Consequently, this entity is expected to increase the revenues and profitability of Infogrames’ distribution operations by establishing distribution contracts with multiple publishers. This transaction formalizes the close relationship between the two companies which dates back to 2001 and generates a number of key benefits:

• A highly efficient network of distribution across Europe and Asia which can be leveraged to deliver the products of both Namco Bandai and Infogrames, thereby increasing revenues of the distribution company
• Economies of scale in operating the distribution network generating significant cost savings
• Access to Namco Bandai’s and Infogrames’ extensive product portfolio on an exclusive basis
• Opportunity to establish distribution contracts with other global video game companies

The main terms of the contemplated transaction would be the following:

• The proposed enterprise value of the newly formed entity comprising the distribution operations would be €95 million on a ‘cash free, debt free’ basis, including a €15 million earn out mechanism based on the actual audited results of the newly formed entity for the fiscal year 2008/2009.
• Until June 30, 2012 Infogrames will benefit from a put option to sell its remaining stake of 66% in the newly formed entity to Namco Bandai.
• From June 30, 2012 to June 30, 2013, Namco Bandai will benefit from a call option over 66% of the newly formed entity held by Infogrames.
• For the purposes of Namco Bandai’s call option and Infogrames’ put option, both parties have agreed that the enterprise value for 100% of the new formed entity would be in the range of €60 million and €190 million based on 7x EBIT of the entity at the time of the exercise of the option.
• Formal closing of the transaction is subject to the satisfaction of customary conditions, including notably the satisfactory completion of due diligence, and is expected to take place before the end of February 2009.

Er...maybe it IS one of those earth-shaking team ups that I was alluding to at the beginning of this article. This looks like a huge deal among two large gamemakers and could have widesweeping ramifications for everyone, involved directly or not.