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EA Takeover Moves and Countermoves
Details have emerged regarding several EA takeover related stories. The long running dispute with Digital Illusions may be coming to an end as EA has waived the requirement to own majority shares in the company. They still plan to purchase as many shares of the company as possible. Ubisoft announced that they have a defense planned against a hostile takeover bid from EA, should it arise. No mention of what this plan is, of course. In reaction to the recent press coverage of their move to purchase Ubi stock, EA has announced that their purchase was not hostile, and that they'd spoken often with Ubi representatives. From the article: "Florin reiterated that Electronic Arts was not asking for a seat on Ubisoft's board. 'We had the opportunity to buy a 20 percent stake in Ubisoft and we haven't asked for anything... That's not hostile. In our industry, one doesn't make hostile moves because our value lies with people,' he added."
If EA is so eager to buy these companies maybe the current shareholders ought to be asking their boards what value EA sees that they haven't been able to realize.
That statement about EA dying is not true. With a strong cash reserve ( 2.5 billion ) last time I checked, EA isn't going anywhere soon but up. A 20 % investment in Ubisoft was a small transaction for them.
And with EA and Microsoft getting tighter together, well you do the math.
Most of us like the old EA instead of the new one , but they are a financially strong company. They were one of Fortune magazines top picks for the year and their current stock price is around $60.
Sorry they're not going anywhere.
Are these the same people who worked OT and never got paid?
" In our industry, one doesn't make hostile moves with a gun because our value lies with beating people."
I think EA is just doing this to keep people guessing and to put their competitors on the defensive.
For basically no cost to EA (they have tons of cash in the bank anyway) they managed to make Ubi (a competitor) hold several emergency board meetings and probably tied up all of senior management for several weeks. Instead of concentrating on making their products, they have to respond to press and government inquiries and come up with a defense strategy.
Furthermore, they got Vivendi involved and probably caused at least some distraction in the management of every other medium-sized publisher. _And_ they diverted some attention from the difficulties EA is having acquiring Dice.
I don't think they really care if they acquire Ubi or not. If it looks doable in a couple months, there's some value there and they'll go ahead. If not, then they probably got a nice short-term return on an investment of some of their spare cash.
The similarities between Electonic Arts' recent practices and those of the world's largest retail company Wal-Mart should be ovious to those with rudimentary economics knowledge.
Electronic Arts can use its leverage and sheer breadth of titles to outcompete others through volume. Wal-Mart also cuts their profit margin very thin, but makes up for it in volume.
If I sell 10000 video games at a profit of $1 a game, and you sell 1000 video games at a profit of $5 a game, I win.
The caveat here is that I have to sell 10 times as many games as you do, which leads to increasing the workforce output in order to increase production time and meet quotas.
Wal-Mart, too, has resorted to cutting its labor costs as dramatically as possible in order to maintain its standing as a volume-based retailer.
However, Electronic Arts is unlike Wal-Mart in a very particular way: they rely on a discretionary product to make their money. Whereas everyone presumably needs T-shirts, food, and chairs, and thus will always *need* Wal-Mart (or at least its products), video games are nonessential and are one of the first things to disappear from a household budget when money is tight.
Unless EA begins to make high-quality games that move to the top of the pack, they will implode the next time a major recession hits. And judging by their volume-over-creativity track record, this is unlikely.