EA buys PopCap for a potential $1.35 billion
Indeed, taking an contradictory approach, perhaps the surprise is that the "more than $1 billion" valuation came in at around $750 million (approximately $650 million cash plus $100 million in shares) plus earnout.
Of course, it's via the earnout that you find what the deal is all about.
The earnout is structured cumulatively over a two-year period, accounted on what EA details as "certain non-GAAP earnings before interest and tax ("EBIT") performance milestones through December 2013."
To gain any additional payout, PopCap must generate more than $91 million EBIT during this period.
Putting this in context, it's thought PopCap's current turnover is around $100 million, while its margins could be as high as 30 percent, giving it gross profits or earnings of around $30 million.
However, if it generates $110 million in EBIT over two years, the "approximate earnout" for PopCap's owners is $100 million, rising to $275 million for an EBIT of $200 million, and peaking at $550 million for EBIT of $343 million or more.
EA notes, "The exact earn-out calculation is subject to adjustments. EA will also provide up to $50 million in long-term equity retention awards to PopCap employees to be granted over the next four years."
This means that in the best case scenario for PopCap shareholders, and indeed EA, the deal could be worth/cost $1.25 billion plus $100 million in EA shares.
To fund the acquisition, EA has raised a $550 million loan, or what it calls "a senior unsecured bridge facility" with Morgan Stanley Senior Funding, JP Morgan Securities, Morgan Chase Bank, UBS Securities, and UBS Loan Finance.
It points out it "expects to explore permanent financing options in connection with the funding of this acquisition."
Calm in the storm
Yet, in terms of the short term impact on EA's business, it's not changing its predictions for its current fiscal year.
However, "On a non-GAAP basis, this deal is expected to be at least ten-cents accretive in fiscal year 2013," said EA CFO Eric Brown, suggesting EA expects PopCap to quickly become profitable for EA Corp.
And when it comes to legalese, the transaction is expected to close in August 2011, "subject to customary closing conditions, including regulatory approvals."