Electronic Arts to Acquire U.K. Game Developer Codemasters for $1.2B

'Dirt 5'
Codemasters

'Dirt 5'

The deal trumped an earlier takeover bid from Take-Two Interactive for the company behind the 'Formula One' and 'Dirt' game franchises and could lead to a bidding war.

Video game giant Electronic Arts said early on Monday morning London time that it has reached an agreement with the board of U.K. game developer and publisher Codemasters to acquire it in a deal valued at $1.2 billion.

The offer trumped an earlier takeover bid from Take-Two Interactive for the maker of racing games, such as Formula One and Dirt, for close to $1 billion. It wasn't immediately clear if Take-Two would counter the offer and set off a bidding war.

Codemasters, founded in 1986 and based in Southam, England, would receive 604 pence, approximately $7.98, in cash for each of its shares. Electronic Arts (EA) said the deal was anticipated to be completed in the first quarter.

"The big question from here is will a bidding war unfold for Codemasters?" MKM Partners analyst Eric Handler wrote in a first reaction. "EA, with more than $6 billion of cash on its balance sheet has more than enough capital to fund this $1.2 billion proposed acquisition without tapping the debt markets. The company also has enough firepower to raise its bid if Take-Two counters with a higher offer. Take-Two has $2.3 billion in cash on its balance sheet, which provides a cushion in case it wants to engage in a bidding war. Codemasters' shares are currently trading at ... a 6.6 percent premium to EA's offer, suggesting there could be more to come before the deal is finalized."

Take-Two on Monday said in a statement: "Take-Two is considering its position in relation to Codemasters, and a further announcement will be made when appropriate."

Handler argued on Monday that the deal "makes a lot of strategic sense" for EA.

"Electronic Arts and Codemasters have a shared ambition to lead the video game racing category," said Gerhard Florin, the chairman of Codemasters. "The board of Codemasters firmly believes the company would benefit from EA’s knowledge, resources and extensive global scale – both overall and specifically within the racing sector. We feel this union would provide an exciting and prosperous future for Codemasters, allowing our teams to create, launch and service bigger and better games to an extremely passionate audience."

Said EA CEO Andrew Wilson: "We believe there is a deeply compelling opportunity in bringing together Codemasters and Electronic Arts to create amazing and innovative new racing games for fans. Our industry is growing, the racing category is growing, and together we will be positioned to lead in a new era of racing entertainment. We have admired Codemasters’ creative talent and high-quality games for many years. With the full leverage of EA’s technology, platform expertise, and global reach, this combination will allow us to grow our existing franchises and deliver more industry-defining racing experiences to a global fan base."

Among other benefits, EA said "the union also creates ongoing and expanded ways for players to engage with the combined portfolio of sports and racing games through EA’s industry-leading multi-platform subscription services."

And it said there would be financial benefits as the acquisition "is expected to grow net bookings and underlying profitability."

Codemasters CEO Frank Sagnier and CFO Rashid Varachia, along with the senior executive management team of Codemasters, plan to remain with the company following completion of the acquisition and "will continue to lead the Codemasters business within EA’s organization," the companies said.