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Electronic Arts, the publisher behind FIFA, Madden NFL, and The Sims, has agreed to a historic $55 billion buyout deal that will take the company private. Backed by Saudi Arabia’s Public Investment Fund, Silver Lake, and Affinity Partners, the deal values EA at $210 per share — a 25% premium. What does this mean for gamers, investors, and the future of the video game industry? In this video, we break down the details, the risks, and the potential impact of one of the biggest gaming acquisitions ever.
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00:00Electronic Arts agreed to a $55 billion deal to go private, a move that could mark the largest leveraged buyout in history.
00:07For more, we'll bring in Jason Bazinet, Managing Director over at Citi.
00:11Jason, always good to see you, my friends.
00:14All right, so EA going private, $55 billion deal.
00:17Saudi Private Investment Fund, Silver Lake, Affinity Partners.
00:21I guess my first question, Jason, I'm curious what you think they could do privately.
00:25What financial and strategic moves can they make, Jason, privately that maybe they would have had a tougher time doing publicly if they were still having to talk to you every quarter, Jason?
00:37Well, I don't know.
00:38This transaction to me is a little bit of a head-scratcher in that it wasn't like EA was unloved.
00:44It wasn't like EA was mismanaged.
00:46It wasn't like EA didn't have, you know, sort of well-understood catalysts, you know.
00:52So it's a little bit of a head-scratcher.
00:54I mean, it's a great asset, but if you ask me to tick off all the things that EA was constrained from doing as a public company that it could now do, I don't think the list is very long.
01:03They had a pretty wide berth.
01:05How do you think about, Jason, Saudi Arabia's role here?
01:10I'm just trying to think, you know, you say it's a head-scratcher.
01:12They've been making all kinds of moves, have they not, in the gaming industry?
01:17Well, they have.
01:18I mean, Saudi, you know, has wanted to get big in a lot of different areas in sports, you know, live golf.
01:25And so they want to definitely put the country on the map.
01:29They've been willing to spend money in other areas.
01:32I'm not saying that this is a bad area.
01:34It's just, you know, when we ran the IRRs for the money that was deployed here, you know, if you use the consensus numbers, which weren't crazy, it spit back something like a low-to-mid single-digit IRR.
01:48This just doesn't strike me as the most compelling use of capital.
01:51If they would have went and, you know, made an offer for EA earlier this year when they stubbed their toe on FC and the stock was $125 a share and the buy side was very angst-ridden about the future of EA and the durability of FC, that you could understand.
02:07But things were going quite well for EA.
02:09And so I just don't see a super compelling IRR.
02:11Maybe there's strategic reasons that the, you know, the Saudis have for why they want to buy this asset.
02:16But on the financial merits, it's a head-scratcher.
02:21All right, so strategically a head-scratcher.
02:23What are your thoughts on valuation for this deal, Jason?
02:26Was that a head-scratcher?
02:27I did see some analysts saying it was roughly in line, they say, with the multiple paid by Microsoft for Activision Blizzard.
02:34Yeah, that's true.
02:37You know, if I went back over the last seven years, this is about a 20% premium relative to what EA has traded in the market.
02:45So it's not so much, you know, it's just not like a deal.
02:49It's just a – it's sort of paying a premium off of a very fair public price is what I would say.
02:56And so what are they going to do that's different?
02:58I mean, look, if my IRR calculations are wrong, I don't think it's going to be the multiple that they come back out at if they come back in the public markets.
03:06Where I'm probably going to be wrong is if the consensus estimates are wrong.
03:10And why could the consensus estimates be wrong?
03:13EA has really been sort of a marquee video game company in the sports genre.
03:21They have never really cracked the code outside of sports.
03:23This Battlefield 6 reboot that they're doing October 10th, about 10 days from now, expectations aren't dour.
03:31They're not exorbitant.
03:33But the company, I know, is very focused on turning this into not just a video game that sells units, but sort of leaning into the live services and recurring spend inside the game.
03:43Where really Call of Duty has been sort of the standout, and EA has done quite well with what they call live services spending inside its sports titles.
03:52So maybe we all just have mismodeled this, and this is going to be the next Call of Duty in the first-person shooter genre.
03:58That's entirely possible.
03:59But the irony of the timing of this bid is to put it in today, or yesterday, I guess it was today, the street's going to get a look at how many Battlefield 6 units come out.
04:10And if those orders fly off the shelf 10 days from now, the buy side is going to demand a higher premium.
04:18And so you sort of scratch your head and say, like, why did you put this offer in now?
04:22Could you have done it six months ago when we would have never known what Battlefield 6 was?
04:26You know, maybe that would have been smarter.
04:27It's just very strange timing.
04:29What's the probability you would assign, Jason, to a competitive bid emerging?
04:35I think it's pretty low.
04:36I mean, I would say when Microsoft went and bought Activision, you know, there was a school of thought that maybe every cloud provider would go out and buy video games so they could offer consumers sort of a cloud subscription service.
04:51So people could junk their PlayStations and Xboxes and just buy a monthly recurring subscription.
04:57to get their compute.
04:59And the thought was, is that you would be more apt to sell more of those if you could also give the consumer a library of video game titles to play along with their subscription for the compute power.
05:10But I think all of the big cloud providers now are so much more focused on AI, and even Microsoft hasn't really launched a cloud gaming service that I think that's pretty unlikely.
05:20So I'm going to guess that there's not going to be a rival bid for this.
05:24Jason, great to see you as always.
05:26Thank you, sir.
05:26Yeah, absolutely.
05:27Thank you.
05:28Electronic Arts is going private.
05:30The video game company agreeing to be acquired by PIF, Silver Lake, and Affinity Partners in an all-cash deal worth $55 billion.
05:37Joining me now, Andrew Merrick, Raymond James Analyst, as well as Michael Pachter, Wedbush Securities Managing Director for Strategic Planning.
05:44Guys, thanks for being here.
05:46I want to start sort of with the basics here.
05:49The premium that is being paid in this deal for EA, 25%.
05:53Andrew, I'll go to you.
05:55Is that premium too high?
05:57What do you think?
05:58I think now that we've had some clarity and the ability to run some numbers on this one, the price paid actually does appear fair, given some precedent in things like the Microsoft and Activision Blizzard transaction, which commenced in 2022 and finished in 2023.
06:15Looking at things like the trading multiples between those two companies, somewhat similar in terms of trading dynamics, EA a little bit more consistent, Activision a little bit more hit-driven.
06:25But when you're talking about the two biggest scaled formerly independent publishers in the U.S., you know, the trading multiples, the LBO models, the implied value all seems to make sense.
06:41Michael, do you think anybody else going to come in and bid for this thing?
06:45Zero chance of that.
06:48Yeah, I mean, unless it was a management buyout, but obviously management's part of this deal.
06:53No, nobody's got that much money.
06:55Andrew's right that the premium is reasonable, but it's not cheap.
06:59So it's not like they're offering $100 billion to somebody to come in at $150.
07:02This is rich.
07:04You need to make, you know, at least $2, $3 billion to justify a U.S. Treasury kind of multiple.
07:11So clearly the Saudis have some plans to expand the portfolio.
07:16I think the Saudis are looking forward 50 years, not five, and are thinking about connected TV games.
07:22They're thinking about how EA just absolutely sucks at mobile.
07:25And they have two of the best mobile companies already in their portfolio with Niantic and Scopely.
07:31Brand extension into mobile is going about it the wrong way.
07:36So I think the Saudis can fix that.
07:38I'm not sure they can fix it while they keep Andrew Wilson in place.
07:40But perhaps eventually he retires at 50, and they put somebody in there who really tries to exploit the portfolio.
07:48Interesting.
07:48And for those who are not familiar, PIF, which we referred to earlier, is indeed Saudi Arabia's public investment fund.
07:54So that's who Michael's talking about there.
07:57You know, Andrew, what do you think?
07:59What kind of changes need to happen?
08:01I mean, EA, you know, has obviously been struggling a little bit.
08:04They came out with those disappointing net bookings a couple of months ago.
08:08So what needs to change under this new structure?
08:12It's actually interesting.
08:13We've written about this, that some of the things that we thought needed to change, it looked like they were starting to change.
08:20You had some evidence of EA kind of centering the player's voice, I think, a little bit more in things like the turnaround of EAFC 25,
08:28where they really honed in on the core competitive player and what their specific concerns with the game were.
08:34And kind of most obviously in the Battlefield 6 development process, where they had the Battlefield Labs testing environment,
08:42which was kind of an ongoing iterative feedback process between the developers and the players.
08:48I think Michael made some great points on things like the mobile business, which EA has great IP that they've never been able to exploit on the platform.
08:55And certain launch issues around non-sports titles especially certainly need to, I think, can be cleared up.
09:04But overall, I think they've done a decent job at some of their bread and butter,
09:08which are things like the sports games and now starting to listen to the player a bit more.
09:12Guys, taking a step back here, some of what you talked about are sort of EA specific.
09:16But I'm looking at an industry now in the U.S. that is only going to have one independent, publicly traded video game publisher, right, in the form of Take-Two.
09:26Like, Michael, what is it about this business that we've seen this consolidation and, you know, these changes where you don't have that independent ownership anymore?
09:36You know, I think it's two things.
09:38I think investors have given up on the space and have concluded, I believe, wrongly that it's not growing.
09:44And the truth is that mobile's still growing, you know, maybe single digit, but 6%, 7%, 8% on a $150 billion base.
09:54Console PC maybe not growing as much.
09:56And investors don't understand that connected TV is coming.
10:00I think that the big public companies have kind of proven that they don't understand mobile.
10:05So Activision bought it when they bought King.
10:08And Take-Two bought it when they bought Zynga.
10:10EA made three bad acquisitions.
10:12They bought Glue and this Golf Clash game.
10:15And I forgot, Codemasters.
10:18They're just terrible.
10:20So, you know, I think EA is being put out of its misery.
10:23But big corporate and big investors are in a position to take the risk that retail and institutional investors are not.
10:30So we're seeing consolidation because the guys with a vision for where the industry is going have the money.
10:35And retail investors, unfortunately, have to rely on guys like Andrew and me to tell them what to do.
10:41And they stopped listening years ago.
10:43So, Adrian, what do you do?
10:44I mean, do you just buy Take-Two because it's the only one left?
10:48Take-Two and Roblox are two companies that we get a lot of investor interest on.
10:53And obviously, Roblox is not a publisher or a content owner in the same way that EA or Take-Two were.
10:58But there are still interesting stories to be told in the industry.
11:02I think Roblox particularly taking a unique approach to how they're choosing to crack the nut of gaming engagement.
11:07And, of course, Take-Two will be interesting to investors into and through, likely, the release of Grand Theft Auto 6 in May 2026,
11:16which is likely going to be, by some distance, the biggest launch in video gaming history.
11:21So there's less out there.
11:23But I think there's still enough to be interesting here in the short term.
11:27And, Michael, is there also a case to be made that you buy the bigger conglomerates?
11:31Do you buy a Microsoft for Activision?
11:34Do you buy a Sony?
11:35You know, how should people be thinking about that?
11:38No, Sony for sure not.
11:39Sony's a terrible company.
11:40And they actually are blowing it in the games business.
11:43Look, games are moving to connect to TV.
11:45So think about all the participants that are going to deliver games the way we get movies via Netflix.
11:51And forget the subscription model.
11:52Just think about iOS becoming on your TV.
11:55So free-to-play games on your TV.
11:57Who's going to deliver that?
11:59Cloud providers, AI.
12:01Anybody who's investing in making that happen is where you want to be.
12:04As far as remaining publishers who invest in, full disclosure, I own 500,000 shares of Playtica.
12:11And I didn't buy it by accident.
12:14It is trading at about a four and a half multiple.
12:16If it gets an EA multiple, I'm going to make several million dollars.
12:20I think that's the one.
12:21And that's where I put my money where my mouth is.
12:23It's a great company.
12:25They are big in mobile.
12:26And they're actually beginning to grow again and deliver lots of profit.
12:30So that's my favorite.
12:31And I'm talking to my book.
12:31I've got to ask you, Michael, when did you buy that one?
12:35Between July and now.
12:37Okay.
12:38I've been nibbling at the lows.
12:40And I love that thing.
12:42And it pays an 11% dividend.
12:43So you get paid while you wait.
12:45I think this thing is a five-bagger.
12:47I wouldn't have put that much of my personal wealth in.
12:49But, you know, what the hell.
12:51I'm a risk taker.
12:51So I suggest that your viewers do the same.
12:54Well, the stock so far has not done well.
12:57But as you say, if it is at the bottom, I guess it's a good bet.
13:00We'll talk more about it another time.
13:01Andrew, Michael, great to see you guys as always.
13:03Really appreciate it.
13:04Thank you.
13:05Pleasure.
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