Did Electronic Arts Pay Too Much for PopCap?

So the rumors turned out to be true: Electronic Arts, one of the world's largest games publishers, is snapping up PopCap, the company that won't stop cranking out sequels to Bejeweled (you know, the colored gem-matching time-waster). For how much? How's $650 million strike you, plus another $100 million shares of EA common stock.

If you haven't heard of PopCap, you've probably still heard of their games. I mentioned Bejeweled, but they're also responsible for puzzlers like Peggle, Plants vs. Zombies, and Zuma's Revenge. See if you can't find something here that looks familiar.

The $750 million price tag sounds a tad high to me, given PopCap only pulled 2010 revenue of $100 million, with revenue projected to rise a tick by another $30 million in 2011. Wedbush Morgan's Michael Pachter agrees the price tag's steep, but thinks it's a long term net positive, arguing the opportunities in digital casual gaming are outpacing EA's "traditional packaged goods business."

EA, for its part, admits it's all about hitting the magic numbers (that, and "diversification").

"EA and PopCap are a compelling combination," said EA CEO John Riccitiello in a statement. "PopCap's great studio talent and powerful IP add to EA's momentum and accelerate our drive towards a $1 billion digital business. EA's global studio and publishing network will help PopCap rapidly expand their business to more digital devices, more countries, and more channels."

For its part, PopCap says it picked EA because the company "recast their culture around making great digital games," which is probably just press release-speak for "$750 million OMG!" (That, and I guess PopCap missed the part about Harry Potter and the Deathly Hallows Part 2.)

Where to next? Pachter says it all depends on whether PopCap hits the high or low range of projected earnings (before interest or taxes). He says that even if the company maintains its current growth rate, it'll only deliver half the proposed earn-out. Don't look for EA shares to reflect the long term "wisdom" of the purchase, either, if PopCap merely tows the line in earnings, adds Pachter.

EA's next move: Battlefield 3, coming this October, as well as (possibly) the BioWare uber-MMO, Star Wars: The Old Republic. I'm confused by Pachter's note about the latter, which he's either saying will ship by 4Q 2011, or slip to 2012.

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