Electronic Arts Hunts Video-Game Bargain Bin for Acquisitions
Electronic Arts Inc. Chief Executive Officer John Riccitiello said the second-largest U.S. video-game publisher has considered a wide range of acquisitions and found most too expensive so far.
“There are probably 25 companies on our radar that would make sense for us at somewhere between 5 and 10 percent of the asking price,” Riccitiello said yesterday in an interview at Bloomberg’s New York headquarters. He said he’s interested in deals that add technology, capability and intellectual property without identifying potential targets.
Electronic Arts, publisher of franchises such as “FIFA Soccer” and “Medal of Honor”, has lost ground in the industry with the rise of games played on mobile phones and social networks such as Facebook. The company’s stock is down 73 percent over the last three years on the Nasdaq Stock Market, giving it a $4.95 billion valuation.
Based in Redwood City, California, Electronic Arts is focused on boosting digital revenue, including online and mobile-phone sales, to $750 million this year. To get there, the company is developing a new “Star Wars” game and integrating the social-game maker Playfish Inc. that it acquired last year.
“I need to finish engineering and building to make that happen,” Riccitiello said. “I don’t need a billion-dollar acquisition.”
Electronic Arts fell 10 cents to $14.91 at 4 p.m. New York time. The stock has lost 16 percent this year. Activision Blizzard Inc. is the largest U.S. video-game publisher.
Electronic Arts bought Playfish, the second-largest maker of games on Facebook, for as much as $400 million, and acquired Chillingo, the U.K.-based publisher of “Angry Birds,” last month to add titles made for Apple Inc.’s iPhone and iPad.
The Playfish purchase pits Electronic Arts against Zynga Game Network Inc., maker of such games as “FarmVille” on Facebook. Closely held Zynga surpassed Electronic Arts’ market value last month, according to SharesPost Inc., an exchange for shares of privately held companies.
Riccitiello said he chose to buy Playfish to exploit Electronic Arts’ own intellectual property instead of paying a much higher price to bet on Zynga, the leader in the social- networking game space.
“Zynga has a chance that ‘Farmville’ will stand the test of time successfully, but it’s far from clear to me that that’s a certainty,” he said.
Electronic Arts has an opportunity in the proliferation of devices for playing games, Riccitiello said. It’s one of the few companies with the intellectual property and engineering resources to create strong franchises that span game consoles, televisions, mobile phones and tablet computers.
Rock Band For Sale
If that opportunity isn’t yet reflected in Electronic Arts’ stock price, then the company has to produce more results to convince investors, Riccitiello said.
“There is going to be a time when perception catches up with the facts,” he said.
While buying the Rock Band music video game franchise could make “theoretical” sense, it’s not the strategic direction his company is moving in, he said
“We’re still out of favor,” he said. “Moves that look like I’m doubling down on yesterday would make it harder still to convince investors that tomorrow is the Promised Land.”
Electronic Arts distributes Rock Band, which is made by Viacom Inc.’s Harmonix studio. Viacom said earlier this month that it plans to sell the unprofitable unit.
“I’m sure some smart investor will buy the business feeling that they can catch a falling knife,” he said, “but more people have been cut trying to catch falling knives than have benefitted from getting the timing exactly right.”
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