Electronic Arts Went Into Debt To Buy PopCap

[vansau]

Electronic Arts Went Into Debt To Buy PopCap

PopCap's recent purchase by EA was some pretty big news, partially because the casual developer is going to stay autonomous under the deal and partially because EA spent so much money to acquire it. In fact, it turns out that EA actually went into debt for the purchase.

It's been revealed that EA priced $550 million in convertible debt in a private placement. Basically, the publisher is borrowing money to help fund part of its purchase of the developer.

The debt will be placed in the form of senior notes that will come due in 2016. The notes will be convertible into cash and EA's common stock (purchasers will receive 31.5075 shares of stock per $1,000).

This is actually pretty interesting, since EA has approximately $2 billion in cash on hand. The purchase of PopCap will ultimately cost EA somewhere between $750 million and $1.3 billion, so it's not like the company didn't have the cash to just buy the company outright, free of debt. That means that EA might actually have other uses for the cash, though exactly what its plans are for the money remains to be seen.

Source: VentureBeat via <a href=http://www.gamepolitics.com/2011/07/15/ea-turns-debt-finance-popcap-deal>GamePolitics


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[CommanderKirov]

Oddest question ever for me. But did PopCap really made that image? Because if so that's the sweetest thing a gaming corporation can do if someone buys it out.

 

[BENZOOKA]

EA really needs to get their shit together at some point.

 

[GeeksUtopia]

well every knew beginning starts off bumpy i guess...

 

[the spud]

I am eager to see EA release a madden every HALF a year instead of yearly to work off there debt...

 

[standokan]

Really EA, is Plants vs Zombies really worth that much?

 

[Hero in a half shell]

WelL, I obviously don't understand economics because that move sounds like it will only cost the company more money in the long-term.

Is this a sarcastic remark? I don't know. I can't even tell anymore...

 

[manythings]

EA really needs to get their shit together at some point.

Because last time I checked having a (fluctuating but fairly consistant) one third share of the entire industries profitability showed they are totally fucked?

OT: I'm sure between a cadre of lawyers, stock brokers and accountants there is a specific logic to this move. What's actually coming out before TOR? Right now I can't think of anything.

Really EA, is Plants vs Zombies really worth that much?

What about popcaps next break out hit? And the ten after that? It could be more of them taking popcap for their back catalogue to add a low cost library to the Origin market.

 

[bob1052]

It seems like they are already spending the money from Battlefield 3 and TOR.

Also now captchas have video ads before you can enter them, thats fun.

 

[Tireseas_v1legacy]

Remember how much they paid for this when they announce that their revenue/profits went down at the end of the year again and everyone is like "oh no EAs videogames aren't profitable."
They do this Acquisition --> Close studio down thing almost every year or at least every 2nd year... of course they're in the red.
http://en.wikipedia.org/wiki/List_of_acquisitions_by_Electronic_Arts

Popcap isn't just a studio though, it was a self-publisher as well, mainly because their mostly-digital-distribution system was extremely effective at selling low-cost casual games like Peggle and Plants versus Zombies. And under the deal, they'll essentially operate in the same way they did earlier (hence the "autonomous" element of the acquisition), except now they can exchange talent and resources from within EA with less hiccups.

For example, imagine someone at Bioware (another EA acquisition) has a great idea for a casual PSN/XBLA/Steam game. Those kind of games simply aren't Bioware's area of expertise, so that game designer pitches it to Pop Cap who could green-light the idea, and then the games designer from Bioware applies with EA, Bioware, and Pop Cap for a temporary placement at Pop Cap. They sign off on it and everyone is happy. The Game Designer get's his game into the development cycle. Bioware's game development teams get a morale boost because they have the flexibility of a diverse parent company so that they can be more creative in their initial concepts and transfer to more applicable studios if it's too far outside Bioware's more RPG-centric style. Pop Cap get's a new game to try out. And EA potentially makes money off the new game. Everybody wins.

This is, of course, all dependent on the top people at each company being rational human beings.

 

[Jodah]

Well, one of the basic rules of economics is "Spend other people's money before you spend your own." I'm sure EA accountants and management did several cost-benefit analysis before making this decision. It really depends on what the interest rate is on the loan.

 

[Frostbite3789]

What's actually coming out before TOR? Right now I can't think of anything.

Some kind of battle game...that may or may not take place in a field. Also, it has something to do with the number three. I don't know, apparently it's pretty popular with the kids these days.

 

[s0m3th1ng]

Odd...would have thought they would be swimming in money McDuck style by now.

 

[Micalas]

Debt isn't necessarily a bad thing. If things go bad they could easily pay it off. It's all about liquidity of assets. They'll have to pay SOME money overtime to service the debt but they still have $2B cash on hand. The acquisition coupled with the cash flow makes stocks go up.

 

[Astalano]

Wow EA is taking the PC pretty seriously.