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Game publisher Electronic Arts Inc. announced Thursday, Oct. 11, it agreed to buy VG Holding Corp., the parent company of game developers Pandemic Studios and BioWare Corp., for $860 million from private equity firm Elevation Partners. Under terms of the transaction, Redwood City, Calif.-based EA will pay up to $620 million in cash to the stockholders of VG Holding and will issue up to an additional $155 million in equity to certain employees of Menlo Park, Calif.-based VG Holding. EA will also assume outstanding VG Holding stock options. In addition, EA has agreed to lend VG Holding up to $35 million through the closing of the acquisition. "We've looked at a lot of companies and have had our eyes on these studios for several years," said EA chief financial officer Warren Jenson said in a conference call Thursday. "This is a powerful combination of creative talent and portfolio strength." The deal bolster's EA's offerings in action, adventure and role-playing games, genres where EA is currently underrepresented, the company said. In addition, EA will gain developer talent at Pandemic and BioWare, traction in the massively multiplayer online game sector, or MMO, and it projects solid financial returns from the deal for several years. BioWare and Pandemic have 10 franchises under development, including six wholly owned games. BioWare is creating "Mass Effect," which will be published by Microsoft Corp. in November, and is in the early development stages of an MMO game. Pandemic, meanwhile, plans to soon release "Mercenaries 2: World in Flames" and "Saboteur," in addition to several unannounced projects. The two studios employ roughly 800 workers in Los Angeles, Austin, Texas, Brisbane, Australia and Edmonton, Alberta. EA anticipates it will close the deal in January 2008. On a GAAP basis, the company expects the transaction to be dilutive to EA's fiscal 2008 results by approximately 30 cents to 40 cents due to nonrecurring acquisition-related charges, stock-based compensation and amortization of intangible assets. In fiscal 2007, EA posted revenue of $3.09 billion and had 24 titles that sold more than 1 million copies, the company said. In April, John Riccitiello, one of the founding partners of Elevation, became the new CEO of EA. During his tenure at Elevation, the firm acquired BioWare and Pandemic, forming the parent company, VG Holding. Elevation invested more than $300 million in BioWare and Pandemic Studios in November 2005. In the conference call, Riccitiello said he still has a "residual interest" in Elevation Partners and that Thursday's deal will "likely result in personal financial benefit" for him at some point in the future. But EA's board and audit committee engaged in the decision-making process independently from Riccitiello on the deal, he confirmed. Electronic Arts has made a number of strategic acquisitions over the past few years. In May, EA agreed to buy a 15% stake in Chinese video game maker The9 Ltd. for $167 million. That deal will help EA expand into one of the world's largest gaming markets, where demand for online sporting games is expected to intensify ahead of the 2008 Summer Olympic Games in Beijing. In March, EA purchased a 19% stake in the South Korean online game company Neowiz, and in October 2006 the company closed its $24 million deal for Swedish video game developer Digital Illusions CE AB. In February 2006, EA completed its $680 million purchase of Jamdat Mobile Inc., a mobile game maker.  Deal Video
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