Who's Buying Electronic Arts (ERTS)? No One.

Seeking Alpha video game columnist Bruce Everliss suggests that video game giant Electronic Arts is ripe for a takeover, and ponders which giant conglomerate will snatch it up. The reasoning: Gaming is a big business that’s growing fast, and ERTS is the biggest, fastest growing player. So who’s going to buy? Google? Microsoft? Time Warner? Etc.

None of the above…
Our logic is about as simplistic as Bruce’s: No one’s going to buy ERTS anytime soon — because it’s really, really expensive. At $55.70, shares are at a two-year high, and give the company a $17.5 billion market cap. Factor in a takeover premium and you’re looking at $20 billion-plus. Even for GOOG and MSFT, that’s much more than a tuck-in. And most of the other suitors Bruce suggests would have a very hard time ponying up the cash or shares, particularly in these credit-crunched days.

More important, hard to see how ERTS does better under the wing of a large conglomerate than on its own. The economics of video games remain quite parallel to the movie business: Big upfront costs for each new game, lots of risk on each bet, value in creating a franchise and/or valuable library of hits. There’s little synergy to being part of a media giant (if News Corp. owns ERTS, it can’t give away the rights to make a Simpsons video game, because then it’s short-changing its Hollywood studio, etc).

Meanwhile Google doesn’t want to own/make content. And Microsoft, Sony (SNE) and Nintendo (NTDOY) either don’t want to make game software, or only want to make it for their platform — and ERTS’ business plan revolves around servicing as many platforms as possible. So: Are we missing something? Is Electronic Arts really a takeover candidate after all? And if so, who’s going to buy? Let us know in comments below.

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