EA Buys PopCap Games for up to $1.3B, Says Seattle Company Will Keep Doing its Thing

7/12/11Follow @curtwoodward

[Updated at 3:40 pm] Never mind about that IPO. Electronic Arts announced today that it’s buying Seattle casual gaming company PopCap Games in a deal that could be worth up to $1.3 billion. The initial price is $650 million in cash and $100 million in EA (NASDAQ: ERTS) stock, with later performance-based payouts that could tack on another $550 million.

Word of the takeover deal first leaked out in late June, when TechCrunch reported from unnamed sources that the two companies were in talks with a roughly $1 billion pricetag. This spring, PopCap started aggressively marketing itself as an IPO candidate, showing off financials to media and bankers in New York.

An IPO still seemed like somewhat of a possibility, even after the buyout rumors emerged. PopCap has been profitable since the beginning, just passed $100 million in revenue, and is seeing big growth ahead in mobile and social platforms. It has an increasing presence overseas, and games like Plants vs. Zombies and Bejeweled have dedicated fans. But the EA offer must have been too good to pass up.

It’ll be interesting to see how much autonomy PopCap retains in the acquisition. As analysts pointed out in my earlier story, there’s precedent for keeping an acquisition as an independent studio within a larger company. That’s seen as a way to keep your hands on staff, who might not like the bigger-company culture and flee to other casual gaming companies, which are pretty hungry for talent themselves. PopCap CEO Dave Roberts makes a nod to the cultural differences in the press release, saying “We picked EA because they have recast their culture around making great digital games.”

[Updates follow here] In an interview with The Seattle Times’ Brier Dudley, EA Interactive executive vice president Barry Cottle said the Redwood City, CA-based company plans to remain fairly hands-off: “Our goal right here is they keep doing what they do, that they do so extremely well, and there’s just some natural synergies we can bring to the table that we can expand and make these guys bigger and stronger and more powerful.”

PopCap co-founder John Vechey also told Dudley that being acquired would be less of a distraction for PopCap’s staff. “The IPO was fraught with risk, it was scary, people were going to start thinking about the stock price all the time. Most employees were worried about that internally,” he said. PopCap also confirms that the smaller company will operate as a Seattle-based unit of EA, with no plans for layoffs.

The recent $1 billion IPO filing by Zynga, the current lead dog in social gaming, was almost certainly another factor. PopCap’s leaders previously said they were eyeing Zynga’s plans very carefully, since its entry into the public market could suck the air out of the room for a company like PopCap. In this slide deck, EA says combining with PopCap will make it the second-largest game developer on Facebook, with about 10 million daily average users in the second quarter versus Zynga’s 53 million and change.

The press release indicates that EA is cognizant of the talent-retention issue, pointing out that it will “provide up to $50 million in long-term equity retention awards to PopCap employees to be granted over the next four years.” PopCap has only raised financing once in its history, taking $22.5 million in 2009, led by Meritech Capital Partners. There will surely be a lot of money in this deal for the co-founders and early employees, as well as the VCs. Dudley’s report clarifies one note from the press release—the $100 million in EA stock that was set aside for “certain stockholders of PopCap” is going to founders Vechey, Jason Kapalka, and Brian Fiete, along with CEO Roberts.

EA’s goal for PopCap isn’t shy, at least today. In the statement announcing the deal, EA CEO John Riccitiello said the pickup would “accelerate our drive towards a $1 billion digital business.” It also should be noted that VentureBeat’s Dean Takahashi reported yesterday, based on an anonymous source, that EA was acquiring social gaming company Ohai.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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