Written by Amadeo Plaza
The Wall Street Journal’s Martin Peers recently made the assertion that Electronic Arts would be a great purchase for media behemoth Disney. His statements sparked a lot of discussion within the industry, and the entertainment sectors in general. If Disney were to purchase Electronic Arts, it would take ownership of one of the world’s largest publishers, further solidifying the gaming industy’s viability as a legitimate entertainment medium. Although we were unable to get a hold of Martin Peers, we spoke with Eric J. Savitz, West Coast Editor of Barron's, about the implications of a Disney/EA purchase and the recent consolidation of the gaming industry.
Despite early claims, the gaming industry is not recession-proof. We live in a consumer-based economy, and because the gaming industry is driven by consumer sales, when the economy hurts, everyone, including this business, hurts. Savitz believes that no one will be able to escape the effects of the economy’s downward spiral, including Electronic Arts. After reporting a $310 million net loss for Q2 because of “weakness at retail,” and seeing their stock price plummet 17%, they, and other companies who are hurting, have become more and more of an attractive purchase for large media conglomerates with a lot of cash on hand.
Generally speaking the best time for companies to buy one another is during an economic slump, because everyone’s value is down, which basically means you’re purchasing at bargain bin prices. Though, Savitz was quick to point out that while that may be true, EA likely feels “now is not the time to sell.”
Speaking from the standpoint of a game company, he said, “Why would I want to sell now? My stock’s depressed. You don’t want to sell in a bad recession when your valuation is way down, and your earning are down, and you don’t get a good representation of your company’s value.”
Conversely, however, he did mention the danger of not selling when offered a premium on your stock, much how Take-Two Interactive turned down EA’s offer earlier this year: “On the other hand, the risk you have is you get what happened to Yahoo. You get offered a premium for your stock, and you turn it down, and then your shareholders get hellish…If you think about Take-Two, they got offered $25 or something and are now at $10 or $11. So, how smart were they? So, their holders have $10 in stock instead of $25 in cash. If I was a Take-Two holder, I wouldn’t be so happy with my management team.”
Although he thinks a seamless synergy would exist between the two companies’ intellectual properties (especially their sports franchises), Savitz doesn’t believe that Disney will be making a serious offer for EA, but concluded that the Madden publisher would have little leverage against Disney if an offer was ever made. At the time of the interview, EA’s stock was floating around $21 per share, so Savitz created the situation of a Disney offer of $30 on the share. “Stocks had been at $60,” he said. “So, they may argue $30 undervalues the stock, and blah, blah, blah. You know, ‘we have premier brands,’ and all those kind of things they would argue. But on the other hand, $20 is a long way from $60…If you liked EA at $40, you’re going to love it at $20.”
The Wall Street Journal’s Martin Peers recently made the assertion that Electronic Arts would be a great purchase for media behemoth Disney. His statements sparked a lot of discussion within the industry, and the entertainment sectors in general. If Disney were to purchase Electronic Arts, it would take ownership of one of the world’s largest publishers, further solidifying the gaming industy’s viability as a legitimate entertainment medium. Although we were unable to get a hold of Martin Peers, we spoke with Eric J. Savitz, West Coast Editor of Barron's, about the implications of a Disney/EA purchase and the recent consolidation of the gaming industry.
Eric Savitz, West Coast Editor of Barron's, believes that while it is unlikely to happen, if Disney was to make an offer to EA, the latter would have a difficult time turning it down considering how low their stock value currently is.
Generally speaking the best time for companies to buy one another is during an economic slump, because everyone’s value is down, which basically means you’re purchasing at bargain bin prices. Though, Savitz was quick to point out that while that may be true, EA likely feels “now is not the time to sell.”
Speaking from the standpoint of a game company, he said, “Why would I want to sell now? My stock’s depressed. You don’t want to sell in a bad recession when your valuation is way down, and your earning are down, and you don’t get a good representation of your company’s value.”
Conversely, however, he did mention the danger of not selling when offered a premium on your stock, much how Take-Two Interactive turned down EA’s offer earlier this year: “On the other hand, the risk you have is you get what happened to Yahoo. You get offered a premium for your stock, and you turn it down, and then your shareholders get hellish…If you think about Take-Two, they got offered $25 or something and are now at $10 or $11. So, how smart were they? So, their holders have $10 in stock instead of $25 in cash. If I was a Take-Two holder, I wouldn’t be so happy with my management team.”
Although he thinks a seamless synergy would exist between the two companies’ intellectual properties (especially their sports franchises), Savitz doesn’t believe that Disney will be making a serious offer for EA, but concluded that the Madden publisher would have little leverage against Disney if an offer was ever made. At the time of the interview, EA’s stock was floating around $21 per share, so Savitz created the situation of a Disney offer of $30 on the share. “Stocks had been at $60,” he said. “So, they may argue $30 undervalues the stock, and blah, blah, blah. You know, ‘we have premier brands,’ and all those kind of things they would argue. But on the other hand, $20 is a long way from $60…If you liked EA at $40, you’re going to love it at $20.”
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