Korean Publisher Nexon is Attempting to Purchase EA

Yep, one of the largest American video game publishing companies is reportedly looking to be bought by a foreign publisher.

In what must be a rather surprising turn of events, game developer and publisher Nexon has apparently put forward a takeover bid. If this is true, this is basically a case of a company that makes most of its money from free-to-play games attempting to buy a publisher that makes its money from paid-for titles, like Madden NFL

… For now, the takeover bid doesn’t hold that much water until one of the companies officially comments. If it turns out to be a serious offer, it could really shake things up for EA and we could see some unusual title carrying the EA logo in future.

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This story boggles my mind.  Now I don’t know the business side of gaming all that much, but something like this just doesn’t make any sense.   For a buyout to work, I was under the influence that the company buying has to be worth significantly more than one being purchased. EA is one of the largest video game publishing companies in America.  So how big of a company is Nexon to be throwing around offers for EA?  I had to dig around a bit, but the Nexon IPO is reportedly worth $1.3 billion with the owner Kim Jung-ju worth about $4.3 billion. The NASDAQ lists EA as having a market value of about $5.2 billion. So we have a company worth about $5.6 billion in assets seeking to purchase a rival company worth $5.2 billion. Doesn’t that mean Nexon would have to basically sell 100% of all their assets to make it even possible to purchase EA? And if so, wouldn’t that make purchasing EA a moot proposition as a result? I could be completely wrong on everything, but for a commoner such as myself, it just doesn’t add up.

(thx Geek)

 

UPDATE: A great article explaining how a deal like this would likely succeed or fail was posted. Wedbush analyst Michael Pachter explains -

Nexon’s market cap is around $8 billion, and their CEO owns over 50% of the stock. Float is around $1.5 billion. If they did a stock-for-stock deal for EA at $20 (very unlikely that this would be the price), they would have to issue shares bringing their market cap to $14 billion (assuming they hold their price, also very unlikely), and the CEO’s stake would drop to around 30% of the combined entity.

Reasons this won’t happen:

1) The CEO will not give up control

2) EA shareholders won’t take Nexon shares, because they would likely drop a ton when the float goes from $1.5 billion to $8 billion

3) EA management would recommend against an offer below $25 (where stock traded in October in a weaker market) and likely would reject an offer below $30

4) Nexon would be the acquirer, and would attempt to run a company with $6 billion in revenues that is in mobile, social, MMO and packaged goods, all things Nexon has never done before, at a size 4x their current size

5) EA management would NOT be in control, so the potential for a loss of key employees is huge

6) There are few, if any synergies, and no reason to believe that Nexon could run EA’s assets more efficiently. Nexon shareholders would own a completely different company than what they bought in the December IPO

My takeaway is that this deal cannot happen. Nexon couldn’t pull off a stock-for-stock deal for the reasons above, and would have difficulty financing an all-cash deal to make EA shareholders happy. If it did, it would have around 50% of its market cap in debt, and there would be a tremendous amount of skepticism about whether Nexon could manage EA’s assets any better than EA management currently does.

(thx GI)