14 DAY TRIAL // Electronic Arts will not be purchased by Nexon, at least according to Wedbush Securities analyst Michael Pachter, who believes that the South Korean company can’t pull off such a move and that EA won’t turn itself over so easily.
The gaming industry was surprised to hear yesterday that South Korean company Nexon, the publisher of many popular free-to-play online games might buy out Electronic Arts, one of the biggest American videogame companies.
This is just a “silly rumor,” at least according to analyst Michael Pachter, who told Games Industry that there are quite a few reasons why such a move would be detrimental to both companies.
First off, Pachter emphasizes that Nexon pretty much doesn’t have the money for such a transaction and would therefore need to start selling even more stock, which would devalue the shares it has already sold to investors.
“Nexon's market cap is around $8 billion, and their CEO owns over 50% of the stock. Float is around $1.5 billion. If they did a stock-for-stock deal for EA at $20 (very unlikely that this would be the price), they would have to issue shares bringing their market cap to $14 billion (assuming they hold their price, also very unlikely), and the CEO's stake would drop to around 30% of the combined entity. “
Pachter then highlights quite a few other reasons why such a move won’t happen, including the fact that EA doesn’t want to be sold and that Nexon doesn’t have enough to profit from making such a deal.
“Nexon would be the acquirer, and would attempt to run a company with $6 billion in revenues that is in mobile, social, MMO and packaged goods, all things Nexon has never done before, at a size 4 times their current size,” the analyst noted.
“My takeaway is that this deal cannot happen. Nexon couldn't pull off a stock-for-stock deal for the reasons above, and would have difficulty financing an all-cash deal to make EA shareholders happy. If it did, it would have around 50% of its market cap in debt, and there would be a tremendous amount of skepticism about whether Nexon could manage EA's assets any better than EA management currently does.”
As such, EA fans shouldn’t worry about their favorite company being purchased by Nexon or any other large publisher.