In the biggest merger for the emerging home multimedia software industry, Electronic Arts said Wednesday that it will acquire Broderbund Software Inc. in a stock swap valued at about $400 million.
The deal reflects the consolidation that has already begun in the multimedia software industry as technological advances and the potential for huge market growth lure big players such as Sony, Time Warner, Disney and Microsoft into a business previously reserved for smaller, lesser-known game developers.
The advent of more sophisticated, highly realistic graphics and video on compact discs known as CD-ROMs are expected to lead to an explosion in the entertainment and educational software market. Such technology is seen as the forerunner to the interactive television programming to become available on the much-ballyhooed information superhighway.
San Mateo, Calif.-based Electronic Arts, best known for its line of sports games such as John Madden Football and PGA Golf, is the nation's largest publicly traded developer of interactive entertainment software in the United States. Broderbund, based in Novato, Calif., dominates the growing educational software market, with its popular Carmen Sandiego series and CD-ROM titles such as Just Grandma and Me.
Analysts said the two companies would complement each other's strengths. Electronic Arts, which published over 200 titles last year for video game machines and personal computers, has been weak in the educational-entertainment software field known as edutainment.
Broderbund, with annual revenue of $96 million last year, compared to Electronic Art's $400 million, will have more financial backing to experiment and expand its aging product line.
And at a time when the industry is getting increasingly competitive, the merger will create a powerful sales and distribution network with the leverage to command much-coveted shelf space at retail outlets such as Blockbuster video stores and Wal-Mart, where interactive software is making inroads.
But bigger is not necessarily always better, cautioned David Readerman, an analyst with Lehman Bros.
Recruiting and retaining talented programmers, for example, may be more difficult.
In the deal, Broderbund will become a wholly owned subsidiary of Electronic Arts.
Broderbund's stock rose $3.75 a share to $41.25 trading Wednesday, after gaining $2 on Tuesday and $1.75 on Monday. Electronics Arts shares fell 75 cents a share to $25.50 on Wednesday. The deal was announced after the close of trading. Both trade on Nasdaq.