E LECTRONIC A RTS , I NC .
P OTENTIAL M ERGERS & A CQUISITIONS
M&A committee: Kaitlyn Emerick, Jasmine Fortune, Claire Lin,
Patti Mansbach, Helen Tse

Electronic Arts-
Acquirer
Kaitlyn Emerick
Akamai
Ubisoft
Take Two
Zynga
EA Potential Targets
Jasmine Fortune
Patti Mansbach
Helen Tse
Claire Lin

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

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

EA Healthy Past
Operating Cash Flows
2010 2011 2012 2013
$152M $320M $277M $324M

EA Cost of Capital
Weighted Average Cost of Capital
Cost of New Long-Term
Debt
Weight of Long-Term Debt
Shareholders’ Required
Rate of Return
15%
5%
10%
18%

EA Increasing Free Cash Flow
2014 2015 2016 2017 2018
$506M $308M $334M $386M $453M
Terminal Value $13B
$13.5B
Critical Assumptions
Sales Growth
Costs of Goods as % of Sales
R&D as a % of Sales
2013
-8%
37%
30%
2014-2018
18%
33%
31%

EA is Fairly Valued
Estimated Value per share
Current Market Price as of 4/24/2014
Current Market
Capitalization
$28
$28
$9B
● EA stock will not be used to acquire companies

EA Acquisition Budget
EA Budget
Cash
Free Cash
Flow
New Debt
Total Budget
$1B
$228M
$700M
$2B
Debt Capacity
Current debt: $633M in convertible bonds due in 2016 with conversion price of $31.74

EA Potential Mergers & Acquisitions
Akamai
Ubisoft
Take Two
Zynga
Jasmine Fortune
Patti Mansbach
Helen Tse
Claire Lin

●
● Leading Provider in cloud services
○ Superior delivery
○ Optimization
○ Security content online
● Serves a wide range of customers

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
Critical Assumptions
Number of solutions sold
Sales growth
Price per solution
Forecasted 2014
1,300
5%
$600,000

Akamai Healthy Past
Operating Cash Flows
2010 2011 2012 2013
$402M $444M $530M $565M

Akamai’s Cost of Capital
Weighted Average Cost of Capital
Cost of New Long-Term
Debt
Weight of Long-Term Debt
Shareholders’ Required
Rate of Return
20%
4%
10%
24%

Akamai Increasing Free Cash Flow
2014 2015 2016 2017 2018
$665 M $913 M $1.6 B $2.1 B $2.9 B
Terminal Value $12.6B
$15.5 B
Critical Assumptions
Sales Growth
Property as % of sales
2013
15%
29%
2014-2018
22%
31%

Akamai Stock is fairly valued
Estimated Value per share
Current Market Price as of 4/24/2014
Current Market
Capitalization
Shares Outstanding
Premium 20%
Purchase Price
$53
$53
$9.6B
179M
$63
$11.3B

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

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.

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.

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
Critical Assumptions
Euro Per Dollar Rate
Hours Spend on the Phone
Per Employee Per Year
Forecasted 2014
€0.75/$
130
Telecom Company Cost Per
Minute
€0.09

Ubisoft Healthy Past
Operating Cash Flows
2010
€241M
2011
€392M
2012
€358M
2013
€400M

Ubisoft Cost of Capital
Weighted Average Cost of Capital
Cost of New Long-Term
Debt
Weight of Long-Term Debt
Shareholders’ Required
Rate of Return
19%
5%
15%
20%

Ubisoft Increasing Free Cash
Flow
2014 2015 2016
€484M €627M €800M
2017
€1B
Terminal Value
2018
€1.2B
€6.7B
€8B
Critical Assumptions
Sales Growth
Costs of Goods as % of Sales
R&D as a % of Sales
2013
18%
27%
35%
2014-2018
25%
27%
37%

Ubisoft is Undervalued
Estimated Value per share
Current Market Price as of 4/24/2014
Current Market
Capitalization
Shares Outstanding
Premium 20%
Purchase Price
€ 18
€13
€1.35B ($1.8B)
96M
€15
€1.5B ($2B)

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.

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

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
Critical Assumptions
Units Sold
Quality & Assessment
Marketing/Promotions
Forecasted 2016
40M
$1.3M
$535,000

Take Two Improving Past
Operating Cash Flows
2010 2011 2012
$(136)M $135M $(85)M
2013
$(5)M

Take Two Cost of Capital
Weighted Average Cost of Capital
Cost of New Long-Term
Debt
Weight of Long-Term Debt
Shareholders’ Required
Rate of Return
16%
5%
10%
17%

Take Two Optimistic Free Cash
Flow
2014
$177M
2015 2016 2017 2018
$42M $150M $192M $422M
Terminal Value $2.6B
$3B
Critical Assumptions
Sales Growth
Costs of Goods as % of Sales
R&D as a % of Sales
2013
49%
59%
6%
2014-2018
50%
55%
8%

Take Two is Fairly Valued
Estimated Value per share
Current Market Price as of 4/24/2014
Current Market
Capitalization
Shares Outstanding
Premium 20%
Purchase Price
$20
$22
$1.7B
86M
$24
$2.1B

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

●
● Develops,operates, and distributes online social games.
○ Farmville
○ Chefville
● Possible acquisition because it is in the online and mobile market.

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
Critical Assumptions
New active users
% of users that make inapp purchase
Forecasted 2015
11M
35%

Zynga Positive Past
Operating Cash Flows
2010 2011 2012
$326M $389M $196M
2013
$29M

Zynga Cost of Capital
Weighted Average Cost of Capital
Cost of New Long-Term
Debt
Weight of Long-Term Debt
Shareholders’ Required
Rate of Return
17%
5%
20%
20%

Zynga Positive Free Cash Flows
2014
$82M
2015 2016 2017 2018
$45M $121M $243M $405M
Terminal Value $4B
$4.4B
Critical Assumptions
Sales Growth
Expenses as % of Sales
R&D as a % of Sales
2013
12%
28%
47%
2014-2018
25%
21%
42%

Zynga is Overvalued
Estimated Value per share
Current Market Price as of 4/24/2014
Current Market
Capitalization
Shares Outstanding
Premium 20%
Purchase Price
$2.28
$4.35
$3.7B
832M
$5.22
$4B

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

No Acquisitions Will Be Made at
This Time
Company
Akamai
Ubisoft
Take Two
Zynga
Recommendation
Will not acquire because it is too expensive.
Future potential target for international business.
Will not acquire. Firm not in mobile industry or international.
Will not acquire because it is too expensive. Possible merger in the future.

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.

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

● 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

No Acquisitions Will Be Made at
This Time
Company
Akamai
Ubisoft
Take Two
Zynga
Recommendation
Will not acquire because it is too expensive.
Future potential target for international business.
Will not acquire. Firm not in mobile industry or international.
Will not acquire because it is too expensive. Possible merger in the future.