EA in Debt inorder to buy PopCap
polycounter lvl 12
Article: http://www.escapistmagazine.com/news/view/111692-Electronic-Arts-Went-Into-Debt-To-Buy-PopCap
Wow, is this common practice?
It didn't have to, but EA decided to go into debt rather than just use the cash on hand to buy PopCap.
PopCap's recent purchase by EA was some pretty big news, partially because the casual developer is going to stay autonomous under the deal and partially because EA spent so much money to acquire it. In fact, it turns out that EA actually went into debt for the purchase.
It's been revealed that EA priced $550 million in convertible debt in a private placement. Basically, the publisher is borrowing money to help fund part of its purchase of the developer.
The debt will be placed in the form of senior notes that will come due in 2016. The notes will be convertible into cash and EA's common stock (purchasers will receive 31.5075 shares of stock per $1,000).
This is actually pretty interesting, since EA has approximately $2 billion in cash on hand. The purchase of PopCap will ultimately cost EA somewhere between $750 million and $1.3 billion, so it's not like the company didn't have the cash to just buy the company outright, free of debt. That means that EA might actually have other uses for the cash, though exactly what its plans are for the money remains to be seen.
Wow, is this common practice?
Replies
They probably don't get all of it, but I imagine they get a hefty chunk to make it well worth their while.
I always assumed that's why studios and other companies sell themselves to publishers and the like so frequently. Simple greed. It sure as shit isn't for the betterment of the company/studio/establishment.
Im pretty sure thats what happened with the recent sellout of australian company firemint.
Someone starts a little business.
The business does well and starts to grow.
The business grows and grows, and soon it has to bring on 'business people' to manage it.
The 'business people' are trained to care about one thing and one thing only: Growth.
The company grows under the direction of the wonderful business people.
The company steadily becomes big, unwieldy, sluggish and soulless.
The original founders spend most of their time dealing with business shenanigans instead of doing what they originally wanted.
The business gets sold to a bigger business that is more capable of handling all the business bureaucracy.
The creative and talented people slowly leave and start new little businesses.
... and the cycle repeats. This is the modern business equivalent to the 'circle of life'.
~ objection
Yeah, I'll believe that when I see it. Working for a small game developer that publishes its own games and makes way more money than most indie studios, I can tell you with certainty it is not that difficult. Especially when you go home to pillars in your house and a pool in your yard.
Businesses that grow too big and need to hire on more and more people got that way because of business people. And those business people who care about "growth", well let's face it - that's pretty much equivalent to greed from their standpoint.
Granted, if I started a company and someone offered me $500,000 for it? Would I take it? Well that would depend on how much money I was making running the company on my own and how much I cared about whoever was working for me. Hopefully I'd care a whole, whole lot. But you never know, money does things to people, even the best of people.
Overuled.
http://www.vgcats.com/comics/?strip_id=300
And therein lies the problem. A perpetual pursuit of more. You can't maintain perpetual growth with finite resources. It's just not possible. Sustainable business is more safer in the long run. Growth is for those that are never happy with what they have.
"Appeal to the 10th Circut Court: The basis of our motion to overtturn is that out of view, behind the character depicted, was a shitload of fun free stuff."
The what?
Yeah I'm not even going to bother with this one...
You are 100 percent correct. Valve makes games solely for fun, and has no interest in earning money to keep the business going. :poly142:
Anyways...that does seem weird...I'm not really business savvy, but why would somebody go into debt to buy something when they clearly have the cash in hand for it? I guess maybe they are saving their cash to do something else..I don't know.
Likely it has to do with shareholders. If the company goes into debt, they can pay that off over time, but they still have the assets that keep the value of their stock high. If they spend that money, the value of the company goes down and people jump ship like rats on a sinking vessel.
why use your own money if you can use someone else's?
and I wouldnt be surprised if EA straddled popcap with the loan that was used to buy it in the first place.
Makes me a sad panda...
on the idea of creating a company, usually the whole idea is to eventually sell the company and make your millions. thats usually why people invest in companies in the 1st place, the big payout when the company is bought. I would do the exact same thing.