Electronic Arts announced on Monday a $ 1.2 billion deal between Electronic Arts and UK racing game developer Codemasters, surpassing Take-Two’s bid last month. The completion of the transaction is expected in the first quarter of 2021.
Electronic Arts (EA), an American video game and online platform, has announced a deal to acquire one of Britain’s oldest video game developers, Codemasters, known for its F1 and Dirt Rally races.
Electronic Arts’ bid of $ 1.2 billion (about $ 7.98 in cash for each common Codemasters share) surpassed its $ 971 million bid from competitor Take-Two Interactive (TTWO) in November.
The boards of directors of both companies recommended that shareholders approve the Electronic Arts-Codemasters deal, after which regulatory approval will be required. The acquisition is expected to be completed in the first quarter of calendar 2021.
The companies have not named specific forecasts, but expect the merger to lead to increased sales and profitability.
Electronic Arts shares, which are up 26.3% year-to-date, are up 2% before trading on Monday amid the news. Take-Two shares, which are up 55.36% year-to-date, also surged 1.55% before trading opened on Monday.
Negotiations could continue and Take-Two could bid higher for Codemasters than Electronic Arts.
“Take-Two is reviewing its position with Codemasters and further announcement will be made if necessary,” Take-Two said in response to Monday’s news.
At the same time, Electronic Arts’ capitalization is higher, in addition, the company has a larger balance sheet than Take-Two, ending the 2019 financial year with $ 5.5 billion against $ 3.08 billion for Take-Two.
While both developers have their own successful sports video games, the added benefit of Electronic Art is the presence of a subscription platform that generates stable cash flow. According to a November report from EA, sales statistics for the Live Services segment over the past 12 months show an increase from last year’s $ 3.36 billion to $ 3.9 billion.
“The Codemasters Council firmly believes that the company will benefit from EA’s knowledge, resources and vast global reach – both in general and in the video racing game sector in particular,” said Gerhard Florin, chairman of Codemasters.
The UK company said that “EA’s offer represents a better deal for Codemasters shareholders than Take-Two.”
For his part, Electronic Arts CEO Andrew Wilson said the acquisition of Codemasters “will expand existing franchises and provide more racing games to a global fan base. We look forward to welcoming such a talented team to the Electronic Arts family. “
Mirabaud analyst Neil Campling said in an interview with Bloomberg: “In some respects EA’s actions appear defensive because they are already under competitive attack from Take Two, and many of their franchises are becoming inferior to the leaders.”
“EA clearly wants to position itself as the leading publisher of racing games,” Louise Shorthouse, senior games analyst at Ampere Analysis, told CNBC, noting that the deal could “open up a broader catalog of Codemasters to a wider audience.”
The level of competition and consolidation in the global video game industry is growing, accelerated by the growth in demand for video games amid the pandemic.
In September, Microsoft (MSFT) announced its largest acquisition in the gaming industry, the $ 7.5 billion acquisition of ZeniMax Media, the company that owns Bethesda Softworks.
According to research firm Newzoo, the trend of frequent use of video games globally will drive industry revenues up 20% this year to $ 174.9 billion, surpassing previous forecasts and significantly boosting gaming industry revenue in 2019.