EA stock soars despite deal doubts

Mixed analyst reaction to BioWare/Pandemic deal can't stop publishers' shares from hitting 52-week-high.

Yesterday, Electronic Arts announced that it would purchase BioWare-Pandemic from Elevation Partners for a grand total of $860 million in cash and other compensation. The initial reaction from the stock market has been positive, as shares of EA were trading up 4.4 percent this morning to a new 52-week high of $61.28. However, the reaction from analysts has been slightly mixed.

In a note to investors this morning, Pacific Crest Securities' Evan Wilson noted that the acquisition gives EA a better foothold in the action-adventure category, but openly questioned the price paid. He noted that BioWare and Pandemic fetched as much as RedOctane ($150 million), Criterion ($68 million), Mythic ($76 million), Bizarre (he estimates $40 million), Havok ($110 million), GLU Mobile ($210 million), and Harmonix ($150 million) combined.

"The price should also raise questions about [EA CEO and former Elevation Partners executive John] Riccitiello's relationship with [BioWare-Pandemic shell company] VG Holdings," Wilson wrote. "While he recused himself from the board for the final vote on the acquisition, we do not think that EA would have acquired VG Holdings without Ricitiello as CEO, or if it did, not for this price. We have not heard from our industry sources that this was a competitive bidding. While the acquisition will benefit Riccitiello to some extent, it benefits Elevation significantly and appears to be a concession to the other partners of Elevation because he left to go back to EA with his work in building a large-scale video game publisher only partially complete."

Wedbush Morgan Securities analyst Michael Pachter also noted Riccitiello's ties to Elevation Partners, saying he stands to benefit up to $4.9 million from the transaction. However, he also said the deal appeared to be fair and notes EA's disclosure of the potential conflict of interest in a Securities and Exchange Commission filing.

"We think that the acquisition, though pricey, will likely pay off," Pachter wrote. "The two studios have averaged almost three games per year over the last seven years, so in order to generate $300 million in revenue, their games will have to average around $100 million in sales, or 2 million units, apiece. Although these are big numbers, we note that several prior efforts were multi-million unit sellers. Should the two studios future performance mirror their prior performance, EA will likely achieve its goal of $300 million in annual revenue."

Lazard Capital Markets' Colin Sebastian didn't directly address whether or not the "significant" acquisition cost would turn out to be a sound investment, but did note that the developers are a "good strategic fit" for the company, and bring with them roughly 800 skilled developers. Nollenberger Capital Partners' Todd Greenwald also acknowledged the price paid for EA was steep, but ultimately said it was a wise use of the company's cash on hand.

176 Comments

  • SeamusPaxman

    Posted Oct 20, 2007 7:17 pm PT

    It's people like martin_f that deserve to die.

  • martin_f

    Posted Oct 19, 2007 6:59 am PT

    Battlefield 2 = Great
    The 'Original' Sims i.e. The Sims and The Sims 2 = Again great
    Madden and Fifa although the same every year gaming wouldn't be the same.
    Orange Box = Great
    Burnout = Great
    Crysis, Skate, Medal Of Honour, Hellgate London, Command and Conquer 3, Black and White etc. etc. all good games Why the hate for EA???

  • K_M82

    Posted Oct 16, 2007 3:53 am PT

    I have said this once, and I will say it again : Well this could be good for Bioware. EA left Maxis alone, and let them have as much time they need to develop a game (Spore has been in development for more than 2 years). If EA treat Bioware like they treat Maxis, than I have no problem at all with EA buying Bioware. Why does everybody only see the bad side of this deal? Besides EA still make good game. Remember C&C 3? NFS? Burout?

    Also remember that unlike Westwood, Bioware did not have a strong IP. Most of their past game used licensed IP (AD&D, Star Wars). Some of the IP they own (that I can remember) are Jade Empire, Dragon Age, and Mass Effect. None of them are as strong as Westwood's C&C. So I think EA buy Bioware for because of the Bioware good developing team. EA would not push Bioware around. One last thing. Remember Bungie? Microsoft did bought Bungie. That doesn't stop Bungie from becoming Independent again.

  • darkchaostitan

    Posted Oct 15, 2007 3:11 pm PT

    What a wreck

  • F1sTDaCuffS

    Posted Oct 15, 2007 1:39 pm PT

    sell sell sell. this company will be offering stock options soon. because of this bad move.

  • lewis2112

    Posted Oct 15, 2007 10:09 am PT

    EA are a real wishy washy company like, one one side u get rushed sports games (FIFA, NBA,) on the other u get game licensces theyve ruined (C&C) and then u get EA's latest attempt at making good games (Crysis) . its bad that EA are still growing and destroying game companys around the world, but its even worse that 2k is now copying them

  • double_decker

    Posted Oct 15, 2007 9:09 am PT

    I don't understand alot of that but that is alot of money, wow. I'm sure the rich boys will make their money though so it's not the big of a deal.

  • Zauster

    Posted Oct 15, 2007 7:38 am PT

    dang now EA will rune another great company. simple as that.

  • Crusade_17

    Posted Oct 15, 2007 7:36 am PT

    pls E.A let the ME games only be xb360 only cuz i know they have this whole ps3 lov but pls dont let that happen

  • DonutTrooper

    Posted Oct 15, 2007 7:27 am PT

    EA Games: Challenge Everything (except for fair competition)

  • DonutTrooper

    Posted Oct 15, 2007 7:21 am PT

    In my opinion, the partnership will give great budgets to the games for development and marketing (think MS and Bungie), but at the same time EA will constrict devs to small amounts of time so games can be released early. It's a sad, sad mess.....

  • Grende1

    Posted Oct 15, 2007 7:17 am PT

    Bad for gamers. Especially bad for 360 gamers. Bad for RPG lovers. Bad for EA as they will just ruin another good group of devs and the once good games will just slide into mediocrity. However, EA will still eventually make their nut, as many still buy average, buggy crap. The only group that this is good for is Bioware/Pandemic, since now that they sold out, they get a ton of money up front and don't have to worry about making quality games anymore. Sad day, indeed.

  • jknight5422

    Posted Oct 15, 2007 7:09 am PT

    EA is the Wal-mart of the videogame industry. Why did they bother to go public & start gobbling other game companies anyway? What's more, why would anyone invest in a gaming company? Game stocks have never been good investments. Also, the stock market in general is doing very well, so it's just good times & hubris if the stock is still going up. It'll crater eventually as all the money is going out of the company to buy these other game companies, so they won't be reporting any profit anytime soon (not after deducting the acquisition costs).

  • BlueEyesGR

    Posted Oct 15, 2007 5:55 am PT

    EA is the disaster for the industry. I mean, I am lucky to be able to play games for many many years, and I don't remember even a single game published under this company, making me say WOW! Average graphics, average sound, average in game engines and technologies, but still great great sales because of a very good marketing. Which makes me think how stupid most people are... We just need a good TV spot to eat the rotten fruit they offer us...

  • sircyrus

    Posted Oct 15, 2007 4:24 am PT

    This is, simply put, the worst thing to happen to the RPG market since the dissolution of Black Isle.

  • t3h_sauce

    Posted Oct 15, 2007 3:05 am PT

    Someone should teach you the English language. Then maybe I would take you seriously. Go die nub.

  • siiixon

    Posted Oct 15, 2007 12:17 am PT

    i hate large corporations, nothing but few incompetent to do real business guys gambling with money instead of letting a company naturally grow trough producing good products... someone should put a cap on how large corporations allowed to get
    ---------------------------------------------
    the reason they paid so much is they believed that trough this acquisition the stock will go up ~7% with at the current 16.xx billions would have been 1.1billion, and instant 200million profit, how ever so far the stock only went up 4.4% with has a value only 710million so EA lost near 200million on this deal.. as i said GAMBLE NOT business

  • karnax77

    Posted Oct 14, 2007 6:02 pm PT

    This is a sad day indeed. Does anyone remember what happened to the other amazing CRPG company when EA bought them? Lord British managed to escape in the end. But only by the skin of his teeth. Farewell Bioware, I guess we see you again when you scatter and reform anew.

  • DjGootch posted Oct 14, 2007 5:21 pm PT (does not meet display criteria. sign in to show)

    DjGootch

    Posted Oct 14, 2007 5:21 pm PT (hide)

    outside of EA purchasing BioWare for so much...can anyone on this site spell? It's hard to take peoples opinions and thoughts seriously when your sentences are put together like you were finding magnet words on a refrigerator. On top of that, the spelling is abhorrent. Before you learn to criticize, Learn2Spell..for christ's sake there's a spell check here.

  • AgentA-Mi6

    Posted Oct 14, 2007 4:42 pm PT

    A sad day, I hate EA...

  • Lisandro_v22

    Posted Oct 14, 2007 4:10 pm PT

    most of ea games suck and me and most of the people i know hate ea

  • c_smithii

    Posted Oct 14, 2007 4:07 pm PT

    Has it occured to anyone's attention that maybe Microsoft have scooped up EA? Think about it for a moment, you see a lot of Microsoft's exclusive developers getting acquired by EA Bungie, BioShock, etc.. Then you have those recent responses from devs joining EA stating they will remain exclusive to Microsoft and don't have no plans to develope for PS3 (see recent Mass Effect news reports). Then you have top Xbox chief market Peter Moore who also recently transition from Microsoft to EA. You got to be thinking to yourself what's going on. There seems to be more to this story than we the video gaming public are getting. All I know is there are a lot of Microsoft guys working behind EA. My hunch is the multi-bilionare dollar coporation (i'm referring to MS) are securing some inroads in making sure they maintain a lock on the American 3rd party devs and I think we will soon see this as time goes on.

  • lociefer

    Posted Oct 14, 2007 3:54 pm PT

    umm , i dunno why , but im really startin to hate EA' games

  • SalarianChemist

    Posted Oct 14, 2007 3:13 pm PT

    Fact: Salarian's are the most intelligent race of Aliens in the universe!

    Fact: I am a Salarian...on here anyways.

    Fact: It may not be a good idea for EA to purchase Bioware and Pandemic for nearly $1 Billion dollars, because that means EA is literally paying nearly $1 Million dollars for each employee. EA might own the IP Rights to games that these companies have created in the past, but EA can't force those employees to continue working for Bioware or Pandemic...and that is where the "true" key to success lies.

    Fact: It may be a good idea for EA to avoid entering into this arrangement, especially considering that it is now 100% confirmed that Microsoft Game Studios has the exclusive publishing rights for the Mass Effect trilogy of games.

    Fact: Don't be surprised if some of the EA Shareholders challenge this...A friend of mine who works as a bartender told me that not everyone at EA is happy about spending $1 Billion for this deal.

  • HaRiZ420

    Posted Oct 14, 2007 12:49 pm PT

    Its a sad sad day today. Can we say monopoly? That is probably the an understatement. EA is going the route of Micro$oft, but hey if you have the money who wouldn't want to make more by using the "company's cash on hand?"

  • Nicolas00-0g

    Posted Oct 14, 2007 11:00 am PT

    @NinjaMunkey01
    You're right. People just say that they read, not with their heart. But one thing I disagree. Winnign Eleven is the best soccer game, FIFA is the second best. Yes some EA's games are bad, but nothing is perfect. MS dos good and bad games. Capcom too, Bioware too, etc. So we must wait until the next Mass Effect sequels. And if EA will close Bioware after some time.

  • Bloodhawk_DX

    Posted Oct 14, 2007 10:56 am PT

    NinjaMunkey01: "dosent mean we have to believe tham."

    Anyway, BELIEVE THAM, NinjaMunkey01, EA hasn't made an original epic game in years. They're nothing more than corporate greed, the cancer that's killing the gaming industry. EA used to be a good developer until their only concern was profit. They don't focus on quality games anymore, they only see the cash. This is exactly why we need developers like Bio-ware need to stay independent. Bio-Ware was more concerned with making profit by releasing a GREAT game every so often rather than putting out twenty games a year as quickly as possible and pray one sells well. Look what they did to WestWood.

  • NinjaMunkey01

    Posted Oct 14, 2007 10:37 am PT

    for those saying EA games are not good some of them are. Fifa is probably the best football game out, madden is good, SSX is good, and just about every other sports game is good all lisenced. MOH is pretty good, mass effect and army of 2 lookes great! C&C was good aswell. all EA and all great. just because gamespot says they are not good dosent mean we have to believe tham. they are doing well for a reason.

    Iwill admit some games are bad but think about NFS. that is great and prostreet looks pretty good. They do not make the defining games for consoles but thats not for them to do. they make multiplatformers for everyone (most the time) which is good. The job of making the defining games are for exclusive and first party developers directly controled by nintendo/MS/sony.

  • xXHackettXx

    Posted Oct 14, 2007 10:26 am PT

    I hope they dont mess up bioware there a great developer.

  • Doolum

    Posted Oct 14, 2007 5:26 am PT

    EA in the good.nice

  • Worsley_ngw

    Posted Oct 14, 2007 4:11 am PT

    This might destroy the quality of the games and that just won't be good.

  • faithlesssoul

    Posted Oct 14, 2007 3:36 am PT

    EA is a weapon of mass destruction there turning in to microsoft

  • ssjdagas

    Posted Oct 14, 2007 2:34 am PT

    I hope this won't mess things up for Bioware. They are the best developers out there.

  • console-deity

    Posted Oct 14, 2007 2:24 am PT

    Bioware will just do what bungie did, in a few years.

  • JHG6784

    Posted Oct 14, 2007 2:23 am PT

    EA better not screw up Bioware like they did with Maxis and WestWood or i'm going to be really piss off.

  • agus23

    Posted Oct 13, 2007 11:57 pm PT

    Nicolas 00g: You gotta be friggin kidding seriously...

  • Nicolas00-0g

    Posted Oct 13, 2007 10:27 pm PT

    Hey, Come on people. Why EA would pay $860 millions for it ? For fun ?
    And I read in a brazilian website that Bioware don't want to do Mass Effect for PS3. Ray Muzyka saw that they love working with Microsoft and probally it will still exclusive to X360, but they can't know the future. So maybe EA can do Mass Effect also to PS3. But we never know.

  • SpartanCell

    Posted Oct 13, 2007 10:23 pm PT

    Then again, I do have to add that Valve seemed to have been given plenty of time to finish the Orange Box even though EA was the publisher behind it. And I'm actually really interested in Army of Two and the Simpsons Game. So maybe (read: hopefully) they'll extend the same courtesy to Pandemic and Bioware.

  • SpartanCell

    Posted Oct 13, 2007 10:13 pm PT

    Well, you know where all their money's coming from - people buying the same sports game every year for $50. That's right, all you Madden Players.

  • VolcanoMan001

    Posted Oct 13, 2007 9:26 pm PT

    Well, in the interview it said that EA was excited about picking up the rights to "Jade Empire". LOL, this is so descriptive of what they do. They buy the rights to something with the sole expectation of bleeding it white. EA doesn't care a bit about pioneering or inovation, they just care about milking tried and true forumlas. System Shock anyone? EA bought that years ago and never did anything with it thinking they would'nt make enough cash off of it. Then along comes Bio Shock and slaps them in the face. The problem for us gamers is that we can likely expect that gradually all Bioware products, now controlled by the direction of EA, will slowly decline to the mundane and repititious.

    The funny thing is everyone complains about EA but few people do anything about it. I personally NEVER buy an EA game unless it is used so they don't get a dime from me. The reality is, the more we support them then the closer we will move to a future where all games are luke warm cookie cutter EA produced games with nary a hint of competition. Sports gamers have already seen this happen for years.

  • phalluman

    Posted Oct 13, 2007 8:12 pm PT

    ea does a great job and the smaller companies they purchase now have the financial backing to create even better games. its win win. just open your mind up a bit. i just read someone said that a soccer game doesnt have weather effects. yeah we should probably murder ea for that.
    are they really 'rushing' their games? the fact is games are getting more and more complex and they still have to suit them to work on everyones computer. of course there will be problems.

  • Supernova_86

    Posted Oct 13, 2007 7:40 pm PT

    Too bad that EA only seems to care about profits. Quality games? Never heard of that before! All EA can see is $$$.

    RIP Bioware 1995-2008

  • chromium42

    Posted Oct 13, 2007 7:28 pm PT

    IMHO this is terrible news. I'm a big fan of all things Bioware: NWN, KOTOR, Jade Empire, and soon Mass Effect. Bioware has done a great job supporting it's fans and building a relationship with them; EA is basically the complete opposite. I'm a bit surprised that MS hadn't already purchased Bioware to keep them exclusive to the Xbox.

  • Evanrocknuma posted Oct 13, 2007 4:55 pm PT (does not meet display criteria. sign in to show)

    Evanrocknuma

    Posted Oct 13, 2007 4:55 pm PT (hide)

    Ok the bungie splitting off from microsoft thing was big news... these smaller companies arn't big news. Their games will probably continue to be multi-platform anyway so I don't really care. Come on GS you havn't given us interesting news since the begginning of last week.

  • Monstromo

    Posted Oct 13, 2007 4:17 pm PT

    Mark my words. This is not an attempt to cover the RPG/Adventure game market. Rather, this is calculated desctruction of competition. Bioware and Pandemic will not remain intact at EA they will be severely diluted. They will be subject to resource and talent sharing--meaning the best guys will be working on other projects and forced to use EA already developed tool sets. Worse, they will Bioware and Pandemic will no longer be on their own time tables but under EA corporate policies. This is a bad, bad development for games that Bioware develop.

    Middle-of-the-road-ware is what is going to produced. You don't think EA will be bleeding Bioware and Pandemic dry to get thier investmet back?

  • vass86

    Posted Oct 13, 2007 3:24 pm PT

    "I personally think EA is starting to change,"

    i disagree. i recently bought the new FIFA and the modes in the game are really bare. there aren't even any weather effects which is rediculous for a next gen game. it obviously got rushed out to get it on shelfs before pro evolution came out.

  • Nicolas00-0g posted Oct 13, 2007 3:08 pm PT (does not meet display criteria. sign in to show)

    Nicolas00-0g

    Posted Oct 13, 2007 3:08 pm PT (hide)

    But if us think a little, EA Buys EVERY company smaller than they. But Why EA does it ? For money ? For diversion ? If EA buys all the games company, look some of these games:
    Rockstar Games: "Need for Speed: Grand Theft Auto" or "Grand Theft Auto: Need for Speed Stories"
    Capcom: "Resident Evil: Command & Conquer" or
    "Command & Conquer: Resident Evil"
    Reflections Interactive:
    "Driver: Medal of Honor" or
    "Medal of Honor: Driver"
    Kojima Productions:
    "The Sims: Metal Gear Solid" or
    "Metal Gear Solid: The Sims"
    It's just fun right ? EA is my third favorite company (just lose to Rockstar and Capcom) so I hope that she change their style, and: DOWN FOR EA'S PRESIDENT !!!!!!!!!!!!!!!!!

  • Iffy350

    Posted Oct 13, 2007 3:06 pm PT

    Does anyone not realize that Madden games always get an average score on Xplay. They also gave the most recent console ports of the sims 2 a 3/5(average). Hm, they must have not received a John Madden gift basket the week before the game was to be reviewed. A John Madden gift basket comes with some old spice under arm deodorant, one popcorn popper endorsed by John Madden and a chef salad made with 50 dollar bills.

  • MrSickVisionz

    Posted Oct 13, 2007 2:58 pm PT

    @iffy

    True, but the games you mentioned are well rated. EA isn't the most original company but they do make games that are pretty good on average and some that are very good.

    I doubt EA mandates that nobody can ever make an original IP. I think that EA has the money to where developers get greedy at all the cash and just wanna keep making the same games. EA doesn't complain cuz it makes them money and really, they're just a publisher so as long as games are published and selling well, they're doing a good job.

    Bio-Ware will go with something new. Besides, I don't think a Jade Empire 3 or 4 and Mass Effect 3 or 4 would be as horrible as everyone seems to think it'd be. Final Fantasy 7 was awesome and it had 6 games before it.

  • Iffy350

    Posted Oct 13, 2007 2:14 pm PT

    "It's true that EA has a short temper for long-time development games, and it's true they ruined some of the best frenchises, but let's not judge EA by history now. With EA paying this steep amount of money, I think they are starting to dumb the theory of "short going short incoming", and aren't we forgetting that EA is publishing Crysis, a game that took it's enough time and has some very optimistic expectations. I personally think EA is starting to change, and with the money they paid, they should be wise enough at least not to ruin the big games." -GAMERALL

    Yeah but look at the sims franchise, its pretty much the same crap every time with lack luster expansion packs. The Sims 3 is taking a higher priority than the new Sim City game which is being handed of to some crappy third party developer no one has heard of. The madden franchise never really changes and they keep charging $60 for every 'new' Madden NFL game that is released.

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