EA buying PopCap today for up to $1.3 billion

Seattle's PopCap Games was acquired by Electronic Arts for up to $1.3 billion, including $650 million cash up front.

PopCap's breakout hit "Bejeweled" established the modern casual games industry that's centered in Seattle starting in 2000. The studio went on to produce a series of blockbuster games that have been played by more than 1 billion people, making it one of the most successful and respected studios in the games industry.

Executives at the companies said Redwood City, Calif.-based Electronic Arts will continue to invest in PopCap and grow the company, which now employs 500 people, mostly in Belltown.

"Quite frankly they are the Pixar of the space," said Barry Cottle, executive vice president of EA Interactive.

"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."

The deal gives EA an especially strong presence on Facebook, where the combined company trails only Zynga, and on Apple platforms where EA and PopCap accounted for six of the top 10 selling games last year.

PopCap was considering going public this fall but employees and founders were wary of how that would change the company's culture, said John Vechey, one of three developers who started the company in 2000.

"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.

"Now, instead of getting a couple hundred million in the bank for us to spend, we get world-class publishing" on platforms including mobile devices and social networks, he said.

"I think for us it accelerates what we were going to do by many years - we're going to be seven years faster to achieving world gameplay domination," he said.

Vechey said the deal was "a highly competitive process" with multiple companies interested in PopCap.

EA is paying $650 million in cash plus $100 million in common stock that's going to the PopCap founders and its chief executive, Dave Roberts.

Additional payouts of up to $550 million will be made if PopCap achieves profit goals over the next two years, although the maximum payout would require the company to increase its profits by ten times over the next two years.

PopCap sales cross $100 million last year and it netted about $15 million. (Its growth is shown on the chart below, presented by EA.) To start getting bonus payouts from EA, it needs to grow profits to at least $110 million. To get the full $550 million, it needs to increase earnings before taxes and interest to $343 million over the next two years.

EA expects the deal to add at least 10 cents per share to its fiscal 2013 results, boosting its overall earnings per share by more than 10 percent, according to Chief Financial Officer Eric Brown.

Last year EA's digital business had $833 million in sales, while PopCap did just over $100 million, 80 pecent of which was digital content.

"It adds 10 percent to our digital business right off the bat," Brown said.

EA stock fell about 3 percent to $23.40 in after-hours trading, after the deal was announced at 1 p.m.

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