Investors, analysts reserved on EA-PopCap union

Publisher's stock price virtually unchanged after possible billion-dollar pickup; industry watchers approving of deal, with some reservation.

After the end of trading yesterday, Electronic Arts made a big splash with the acquisition of PopCap Games, picking up the developer of Bejeweled and Plants vs. Zombies in a deal worth between $750 million and $1.3 billion. Despite the significance of the pickup, the reaction to it from analysts and Wall Street has been mild at best.

Dividdeeeeennnds!

Electronic Entertainment Design and Research analyst Jesse Divnich told GameSpot the structure of the deal--with the payment changing depending on how much revenue PopCap brings in for EA over the coming years--helps temper concerns about EA paying too much.

"Over the last five years, most acquisitions in emerging markets go for a 10x to 20x multiple on revenues," Divnich said. "The purchase price of PopCap will eventually fall in between the 10x to 20x range, making PopCap's acquisition typical and in-line with current market standards."

In a note to investors, Wedbush analyst Michael Pachter was more positive on the deal, saying it "has the potential to be transformative."

"In our view, PopCap is a great strategic fit, and we acknowledge that there are limited acquisition opportunities for EA that have the potential to add as much to EA's top and bottom lines," Pachter said. "However, EA's acquisition history has been uneven, and investors are generally skeptical about large-scale acquisitions. We think that the deal's structure offers some protection, and note that at the low end, the deal would be merely expensive, but would not be a disaster."

As of press time, EA stock was trading at $24.15, down less than 1 percent from its pre-announcement closing price. The last time the publisher announced an acquisition of this scope--2007's $860 million deal to pick up BioWare-Pandemic--shares of the company jumped more than 4 percent to hit a 52-week high despite mixed reaction from analysts. After launching Mercenaries 2 and Saboteur, Pandemic was gutted two years later and folded into EA's Los Angeles studio.

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Discussion

14 comments
MJ12-Conspiracy
MJ12-Conspiracy

Watch Plants VS Zombies be turned into a yearly game and be branched out into other themes like..... Plants VS Ninjas Plants VS Pirates Pirates VS Ninjas Plants Vs Ninjas Vs Pirates VS Zombies Plants VS Plants WTF

coop36
coop36

I get the feeling this is the beginning of the end of good PopCap games..

zaiwen
zaiwen

now that its official... expect PvZ to be released yearly just like they do with their sukky sports games

towely62
towely62

popcap games are already overpriced as it is. now we r goin to get overpriced dlcs and have to pay for online usage

ACMC85
ACMC85

POPCAP is fantastic, some great games, I find them pricy, but definitely worth it when they are on sale.

Nonkik
Nonkik

Popcap games are great and all I can so EA is "Don't screw it up"

redness19
redness19

We can expect to see 99 cent DLC for PopCap games now.

atopp399
atopp399

Probably because it will take a very long time to recover $750 million selling a few casual games before this becomes profitable.

Valacan
Valacan

Stupid EA. Leave everyone alone. Stop spreading your garbage philosophy.

nurnberg
nurnberg

I don't like wishing people to lose their jobs, but I just hope that EA becomes so big and bloated that it implodes and goes bankrupt.

X_Colbert_X
X_Colbert_X

Analysts seriously get paid for stuff like this? I probably make less than these guys teaching :/

ZICO11
ZICO11

well aint no zombie gonna be on my loan :P