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Electronic Arts, Inc. Potential Mergers & Acquisitions

Electronic Arts, Inc. Potential Mergers & Acquisitions. M&A committee: Kaitlyn Emerick, Jasmine Fortune, Claire Lin, Patti Mansbach, Helen Tse. EA Potential Targets. Online and mobile is where the gaming industry is headed. 2. 1. 1. 2. EA Transition to Online and Mobile Games.

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Electronic Arts, Inc. Potential Mergers & Acquisitions

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  1. Electronic Arts, Inc. Potential Mergers & Acquisitions M&A committee: Kaitlyn Emerick, Jasmine Fortune, Claire Lin, Patti Mansbach, Helen Tse

  2. EA Potential Targets

  3. Online and mobile is where the gaming industry is headed 2 1 1 2

  4. EA Transition to Online and Mobile Games • Traditional gaming company: Microsoft’s Xbox, Sony’s PlayStation, and Nintendo Wii • Popular games: Madden NFL Series, Battlefield, Titanfall and The Sims • Acquired PopCap games in 2011 for $750M • Big break into mobile and online gaming • Market cap before: $8 billion • Current market cap: $9 billion

  5. EA Healthy Past Operating Cash Flows

  6. EA Cost of Capital

  7. EA Increasing Free Cash Flow

  8. EA is Fairly Valued • EA stock will not be used to acquire companies

  9. EA Acquisition Budget Debt Capacity Current debt: $633M in convertible bonds due in 2016 with conversion price of $31.74

  10. EA Potential Mergers & Acquisitions

  11. Akamai Technologies, Inc. • Leading Provider in cloud services • Superior delivery • Optimization • Security content online • Serves a wide range of customers

  12. Akamai Alta 2.0 May Create $4.4 M • Alta 2.0: an updated version of web accelerator solution • Initial cost: $1.2M • Net present value: $4.4M • Payback period: < 1 year

  13. Akamai Healthy Past Operating Cash Flows

  14. Akamai’s Cost of Capital

  15. Akamai Increasing Free Cash Flow

  16. Akamai Stock is fairly valued

  17. Akamai will not be acquired • EA cannot afford Akamai at this time • Akamai’s estimated share price is too high

  18. Ubisoft is in the European Market • Based in Paris, France. • 129 offices worldwide. • Largest is in Montreal, Canada. • Acquiring Ubisoft could increase cash flows in the European market for EA.

  19. Ubisoft Will Be a Successful Cross-Border Acquisition • Only 17% of cross-border mergers and acquisitions create shareholder value. • EA will create incentives for the key people at Ubisoft to stay.

  20. Ubisoft Voice Over IP May Create €8 M • Implement a voice over IP system for international phone calls. • Initial cost: €1.5M • Net present value: €8M • Payback period: <1 year

  21. Ubisoft Healthy Past Operating Cash Flows

  22. Ubisoft Cost of Capital

  23. Ubisoft Increasing Free Cash Flow

  24. Ubisoft is Undervalued

  25. Ubisoft could be bought at a later time • Ubisoft is not in the online and mobile industry. • Just because we can afford to acquire them, does not mean we should. • Should invest in online and mobile before we expand internationally.

  26. Take Two Interactive Software Inc • Leading developer, marketer, publisher of video game products • Grand Theft Auto (GTA) • BioShock Infinite • NBA 2k14

  27. Take Two GTA VI May Create $871 M • Create Grand Theft Auto VI • Initial cost: $8.2M • Net present value: $871M • Payback period: < 1 year

  28. Take Two Improving Past Operating Cash Flows

  29. Take Two Cost of Capital

  30. Take Two Optimistic Free Cash Flow

  31. Take Two is Fairly Valued

  32. Take Two will not be acquired • Uncertainty to Take Two’s very optimistic free cash flows • EA cannot afford Take Two at this time • EA focusing on online and mobile sector

  33. Zynga, Inc. • Develops,operates, and distributes online social games. • Farmville • Chefville • Possible acquisition because it is in the online and mobile market.

  34. Zynga New Social Game App Will Create $18 M • Launch new social game app • Initial cost: $5.5M • Net present value: $18 M • Payback period: < 1 year

  35. Zynga Positive Past Operating Cash Flows

  36. Zynga Cost of Capital

  37. Zynga Positive Free Cash Flows

  38. Zynga is Overvalued

  39. Zynga Could Merge With EA Why? • EA does not have enough money to acquire Zynga • Zynga is overvalued Benefits: • Increase market cap and company value • Align to EA’s business model • Only implementation cost

  40. No Acquisitions Will Be Made at This Time

  41. Moving Forward • Our recommendation is to acquire small privately held companies because they are more affordable and will be easier to integrate into Electronic Arts.

  42. Merger Success IT can be a powerful factor behind M&A success 2 key points that ensure back-end integration • Have its own IT in the best shape before initiating any deals • As companies begin merger talks, IT leaders should be involved as well

  43. Principled Leadership • Communicate regularly • Integrated culture • Create positive business momentum and discipline • Get staff involved • Create trust and purpose in the community • Allows employees to remain focused and engaged on the job

  44. No Acquisitions Will Be Made at This Time

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