Brightbridge Wealth Management Headlines: In PopCap, Deal Electronic Arts Has Its Eyes on Zynga

http://dealbook.nytimes.com/2011/07/12/in-popcap-deal-electronic-arts-has-its-eyes-on-zynga/
BY MICHAEL J. DE LA MERCED

For many, Electronic Arts has long been synonymous with video games: many (including this reporter) have whiled away a few hours away with the Madden franchise, the Need for Speed series and the Sims lineup over the years. (Maybe more than a few.)

John Riccitiello, chief of Electronic Arts, in Redwod City, California.

But as newer entrants like Zynga capture more and more of the increasingly lucrative casual game market, Electronic Arts felt the need to partner up with a company with a big presence across platforms like mobile phones.

Enter Tuesday’s$750 million deal to buy PopCap Games, a transaction whose price tag could ultimately swell to as much as $1.3 billion.

“It’s an unbelievable growth story,” John Riccitello, Electronic Arts’ chief executive, told DealBook in an interview by phone on Tuesday. “We’re not going to knock dow
Zynga tomorrow — they’ve got a great business — but we’ve got an opportunity to close that gap.”

With a healthy presence in a variety of new platforms, from mobile phones to social games to tablets, PopCap is well-positioned to tap into a burgeoning sector, Mr. Riccitello said. Casual games currently represent about a quarter of the video game industry now, he added; in four to five years, that could swell to half of the market.

PopCap had already been headed toward an initial public offering, having met with bankers and cleaning up its books over the past several months, according to its chief executive, David Roberts. Naturally, the 11-year-old company received a number of approaches from hopeful suitors.

But Mr. Roberts said that PopCap had hoped to find a home with its longtime partner, Electronic Arts. And after a competitive sales process, Electronic Arts prevailed. (In internal deal discussions at E.A., PopCap was referred to as “Plumpjack.”)

Mr. Riccitello said he had not expected to strike a big deal this year, since his company was already busy with a number of new game rollouts. But the opportunity to buy PopCap, whose Bejeweled games have sold more than 50 million units across a range of platforms, was too good to pass up.

“PopCap has been on the top of our list forever,” he said. “We didn’t get to determine the timing, but we’ve admired them for a long time.”

That admiration doesn’t appear to extend to Electronic Arts’ shareholders at the moment. The company’s shares tumbled 3.8 percent in after-hours trading, to $23.25. That’s a sizable decline, during a year when many acquirers’ stocks have actually risen after a deal.

But Mr. Riccitello argued that PopCap’s growth prospects made the deal a no-brainer: “If this generates anywhere near the middle of the range or better of the earnout, and someone else owned it, I would be accused of C.E.O. malpractice for not doing the deal.”