Electronic Arts Went Into Debt To Buy PopCap

[Baresark]

Honestly, depending WHERE they got the money from it is probably a much better investment for them to go into a small debt than to utilize their main resources. Especially since how low USA interests rates are from the National Treasury which I'm sure certain banks don't mind passing that free money down to certain companies at a 0.1% interest rate*.

*interest rate I quoted is most likely incorrect but acknowledges that the interest rate is THAT low.

Not to be contrary, but it's universally a bad idea to borrow money when you do not need it. That is like saying that it's better for you to buy your groceries with a credit card, even though you have the money. Then taking your sweet time to pay it off so it accumulates some interest. It's not worth buying something for more than the asking price when you have the money to do it. That being said, I would say that they either have something big planned and the PopCap purchase is akin to an impulse buy, or they don't actually have $2 Billion dollars in liquidity like they claim.

OT: I wonder if it really makes sense to purchase this company when the majority of people who play their games already own them. They probably won't make any crazy money off of PvZ or Peggle anymore. Perhaps PopCap has something big planned.

Well, they've got enough collateral to cover their debt in cash, and they probably have a pretty sweet credit rating, so I think it's a good call on their part.


EDIT:Actually, now that I think about it, it's a very good tactic. Have enough money to cover a loan, get the loan, see if the debt ceiling gets raised. If it doesn't, hyperinflation makes paying the loan off real easy. If it does get raised, pay it off in cash.

It's not a good call to purchase with credit what you have the cash for. In economic terms, debt is a negative commodity and will always negatively affect your bottom line. The more I think about it, I would say they are not as liquid as they claim to be.

Also, if hyper inflation occurs, the last thing anyone on the planet would worry about is them paying off their debt. In that instance, money becomes completely worthless, and all that matters are actual commodities, and whoever extends them the line of credit will actually own PopCap then, not EA.

And.... what makes you think that if the debt ceiling is not raised for the 75th time, this will lead to hyper inflation? Besides, Obama has made it completely clear that despite what anyone at all has to say about it, no matter how many people polled don't support it, no matter how much Congress says no, he will make it happen. He may decide that signing an executive order is worth it. Ignoring absolutely everyone would make him America's first dictator, which is actually a really depressing idea.

 

[The Great JT]

Guess EA needs to keep more of their walking-around money in the bank...

Also, it's worth going into debt if it gets zombies off your lawn.

 

[Fursnake]

/facepalm

EA, EA, EA.../shakeshead

 

[Ilovechocolatemilk]

Causal games are massively profitable, but I think EA got a raw deal here. I wonder if EA will ever go under, if it's even possible for a company that large to go bankrupt. Obviously this won't be the straw which breaks the camel's back, but if they continue to make decisions like this, it makes you wonder.

 

[icame]

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

If you read the article you would have seen that it said they have 2 billion in cash, they just chose not to spend it on this purchase. They definitely have their "shit together"

 

[Hungry Donner]

I'd be willing to go into debt to buy PopCap, but it's unlikely anyone would lend me 500-1000 million dollars. My credit rating is pretty good but it's not half a billion dollars good.

Jokes aside, it does seem weird not to use their cash on hand, but even if I don't like all of EA's buisness decisions I'm happy assuming they know what they're doing here. It also doesn't seem terribly uncommon in the industry.

 

[vansau]

PopCap's recent purchase by EA was some pretty big news, partially because the casual developer is going to stay autonomous under the deal...

Why didn't you tell us before? That makes Pop Cap more like the Pixar of the video game world rather than the sell out.

As for the debt thing... I don't get it.

Actually, it was mentioned in the original news story about the purchase.

 

[wulfy42]

They better not mess up PvZ 2.....my wife likes many of popcaps games but we both loved that one.

Never been um a big fan of EA games though.....hopefully they don't have any affect on popcap's quality.

 

[rembrandtqeinstein]

Man after old republic fails so hard they are going to wither. Serves you right for murdering origin you wankers. Though to be fair ultima 8 and 9 were butt but still they could have recovered.

 

[Not G. Ivingname]

PopCap's recent purchase by EA was some pretty big news, partially because the casual developer is going to stay autonomous under the deal...

Why didn't you tell us before? That makes Pop Cap more like the Pixar of the video game world rather than the sell out.

As for the debt thing... I don't get it.

Actually, it was mentioned in the original news story about the purchase.

Oh, didn't see it.

 

[SextusMaximus]

PopCap are probably pissing themselves laughing with the money they made from this.

 

[Findlebob]

Well their goes another gd team into the furnace of EA.

 

[Azmael Silverlance]

So wait i can BUY 31 shares of EA for 1,000$???
Can someone explain this to me pls.

 

[Nazrel]

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?

EA hasn't made money in years.

Net loss for year end march 31, 2011 : 276,000,000
Net loss for year end march 31, 2010 : 677,000,000
Net loss for year end march 31, 2009 : 1,088,000,000

 

[Therumancer]

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?

EA hasn't made money in years.

Net loss for year end march 31, 2011 : 276,000,000
Net loss for year end march 31, 2010 : 677,000,000
Net loss for year end march 31, 2009 : 1,088,000,000

Well, for one I don't nessicarly trust what companies claim their earnings are. One of the many reasons why there are demands for greater accountability to the goverment and the public on the earnings of major companies is that it's too easy to disguise the truth, and companies tend to claim whatever is going to benefit them the most right then and there. A company that is making money, but wants to make MORE money by laying people off, slashing benefits, and similar things is going to claim a loss publically. At the same time as we saw with things like ENRON, it's possible to move money/financial statements around and for a company running on empty to be shown as making major profits when they aren't, which of course is done to bring in investors and loans so the big wigs can try and recover and/or pocket the money to line their golden parachutes.

In EA's case it should be noted however that EA is currently financing the most expensive MMORPG in history. "Star Wars: The Old Republic" has been under developeent for like 6 years, and we've been hearing claims that the game has ranged anywhere from 300 million dollars (EA Louse) to eclipsing the budget of James Cameron's "Avatar" (even more obscure sources). As the game hits more and more delays, even if EA was right in denying this to begin with, the development cost is increasing.

When you consider that ORO is the first game being truely designed to go head to head with what WoW is right now, and the money spent on it and it's expansions/content since... well to say it's a cash sink is probably an understatement. As you could even tell from things like E3, the investors and industry watchdogs have been looking at this one with some concern for a while.

At any rate, if EA is slinging as much money into ORO as many people have been reporting, it's not surprising they have been losing money, and needing to borrow it, especiallty if they are investing in other companies for post-ORO development.

Right now this overall situation is unusual for video game developers (though apparently not entirely unheard of), but I don't think it's as alarming as many people might think. Succeed or fail, remember that EA is involved in one of the most ambitious projects the gaming industry has ever seen.

That said, I'm not a huge fan of Popcap or casual games in general, but I can see why EA wants them with all the claims being made about the casual market. Popcap does seem to be the creme of the crop there, and if they want casual developers, they seem to be the guys to do it.

 

[killamanhunter]

I read this, got my hopes up, thn was dissapointed they ould pay it off.

I dont like EA, them and activision need to vanish.

HEY! mammy mammy I found a douchebag who wants thousands of people on the street without jobs or anywhere to fall back on!


OT: Business is a strange topic to see in action, and why I'm a film student rather than a business man.

 

[Baresark]

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

If you read the article you would have seen that it said they have 2 billion in cash, they just chose not to spend it on this purchase. They definitely have their "shit together"

Sadly, no. Having the money on hand to make a purchase, yet choosing instead to borrow it instead and go into debt is always a bloody bad idea. Because however much EA borrowed to purchase Popcap (the article seems to suggest anywhere between half a billion to a billion dollars[/i]), that amount has to be paid back with interest. As in EA are paying more money this way than if they'd just decided to buy Popcap with their own funds. If they'd bought Popcap with their own money, they may have less money in cash, but they also wouldn't owe hundreds upon hundreds of millions to someone else.

I made the same point. Purposely going into debt is a bad decision, as debt negatively affects the bottom line of a company. Yet, for some strange reason, people here seem to think it's a good idea to do such a thing. As if it's better to buy a car with a credit if you have the money, or your groceries, or pretty much anything else in life. The funny bit is with a debt that like that, you might as not have $2 Billion on hand to do anything. I get paid twice a month, but I can't claim that I made huge amounts of money when I haven't payed my rent, car insurance, etc., yet. I have less money after I pay my overhead, which would include any debt.

Also, if you include all the money they have not been making (they have been posting losses for a while now on their financial sheets), the need to borrow money to do this, I think it's a safe assumption they don't have the amount of money they claim to have. If they are getting PopCap for $750 Million, they will most likely be paying over $1 Billion dollars for it. Why would they cut their total liquid assets in half down the road, if it were not completely necessary.

 

[Baresark]

I read this, got my hopes up, thn was dissapointed they ould pay it off.

I dont like EA, them and activision need to vanish.

HEY! mammy mammy I found a douchebag who wants thousands of people on the street without jobs or anywhere to fall back on!


OT: Business is a strange topic to see in action, and why I'm a film student rather than a business man.

Why do people pursue this line of thought? These companies, in a lot of people's opinions, treat their customer base really poorly. No one wants to see people out of a job, but they are not required to like that company. And if they feel the company takes advantage of people, they are allowed to state that opinion without being considered horrible human beings for it.

Besides, if EA has a large amount of talented people at their disposal, those people would be able to find jobs at other companies in the industry. Their talents may be better utilized by a company that the public at large appreciates. Also, they have gone about over the years and gobbled up smaller companies, all but destroyed them, and managed to lay off those company employees, why not consider that negative as well? Why is it ok if the big company has fired plenty of people, but not ok if one does not wish to support that company?

PS. I am saying this stuff with a smile, I don't want anyone to think I was mad or inflamed about this. I just think it's important people understand what is happening. As a film student, I'm sure you can understand that.