A Japanese computer games maker has agreed to buy Eidos, the UK company behind the Tomb Raider and Championship Manager games, for £84.3m ($120m).
Square Enix said it would pay 32 pence a share in cash for Eidos, which has been hit by weak US sales of its latest edition of Tomb Raider.
Eidos shares more than doubled in value in early trading, to 31 pence.
The company said last month that it had received an informal takeover approach from an unnamed bidder.
US media giant Time Warner owns 20% of Eidos and had been tipped as a potential bidder.
Square Enix, known for its Dragon Quest and Final Fantasy video games, wants to extend its reach in Europe.
"Eidos's products are highly complementary to our business and will accelerate our aggressive expansion into Western markets," said Square Enix president Yoichi Wada.
Separately, Midway Games, the firm best known for its Mortal Kombat video games, has filed for bankruptcy protection in the US.
It said it did not think it would be able to pay back debt obligations s that stemmed from the sale of a majority stake in the company.