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Codemasters may be worth more under Electronic Arts umbrella as it outmuscles 2K

“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”, said Andrew Wilson, EA chief executive.

Electronic Arts Inc. - Codemasters may be worth more under Electronic Arts umbrella as it outmuscles 2K
image source: @Codemasters / Twitter

Electronic Arts Inc (NASDAQ:EA) appears to have outmuscled its sports-gaming rival TakeTwo Interactive Software Inc (NASDAQ:TTWO) to buy Codemasters Group Holdings PLC (LON:CDM) with a £954mln bid usurping a prior offer of £735mln.

One might wonder why EA are prepared to pay such a lofty £219mln or 29% premium for the UK-based video game developer.

It might be as simple as Codemasters game’s will be worth more commercially under the EA umbrella than if they were bought up by 2K and Rockstar Games parent TakeTwo Interactive.

EA leads sports gaming with most of the key franchise brands including FIFA, NFL, NHL and UFC. Its in-game monetisation is among the most developed in the industry – aside from Fornite’s freemium phenomenon – which could create significant additional revenue streams for Codemaster’s F1 IP, for example.

Increasingly, these franchise titles generate more money through in-game microtransactions than through retail sales.

In its second-quarter update, for example, EA announced record cash flow generating just over US$2bn over the trailing twelve months driven by largely by digital transactions. Some US$869mln of EA’s second quarter revenue total US$1.15bn came from ‘live services’, whilst full game sales amounted to US$282mln.

Announcing its offer for Codemasters, EA said it believed the combination “creates an opportunity to deliver further growth and success for Codemasters' and EA's popular and innovative franchises” while also creating a “global leader in racing entertainment experiences”.

“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”, said Andrew Wilson, EA chief executive.

Gerhard Florin, Codemasters chairman, meanwhile, added: "We believe there is a deeply compelling opportunity in bringing together Codemasters and EA 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."

Analysts at stockbroker Shore Capital said the EA offer “better reflects” the firm’s qualities such as its “key relationships, significant exposure to important growth verticals and … the upward trajectory it has been experiencing since its listing.”

Quick facts: Electronic Arts Inc.

Price: 139 USD

NASDAQ:EA
Market: NASDAQ
Market Cap: $40.29 billion
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