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EA to Acquire Cellphone Game Maker

The planned purchase would tap Jamdat's presence in the mobile entertainment market.

December 09, 2005|Julie Tamaki | Times Staff Writer

Hoping mobile games will ring up sales, Electronic Arts Inc. said Thursday that it would pay $680 million for one of the world's largest makers of cellphone video games.

EA plans to buy Los Angeles-based Jamdat Mobile Inc. for $27 a share -- a 19% premium over Jamdat's closing price of $22.77 Thursday, but 21% below the company's July peak of $34.19.

EA shares fell 84 cents to $55.75, and to $54.10 in after-hours trading following announcement of the all-cash deal.

The acquisition would quickly give Redwood City, Calif.-based EA a strong position in the growing global market for cellphone games. The market is expected to grow from $1 billion to more than $5 billion over the next several years.

EA, the world's largest independent game publisher, said it made more sense to acquire Jamdat than to build its own mobile gaming empire from scratch. Jamdat already has a strong presence in North America, Europe and Asia.

"Obviously this is a build-or-buy decision," said Larry Probst, EA's chairman and chief executive. "We could build it over time, but over that same period of time Jamdat isn't going to stand still."

Wedbush Morgan Securities analyst Michael Pachter said EA could leverage Jamdat's global reach to deliver such popular EA franchises as "Madden" football, "Harry Potter" and "The Sims" to cellphones.

"The deal should be complementary insofar as the guy with content buys the guy with know-how," Pachter said. "The synergy is something Jamdat couldn't create on its own."

Jamdat is best known for simple games such as "Jamdat Bowling," "Bejeweled" and "Tetris." Jamdat Chairman and CEO Mitch Lasky is expected to lead EA's mobile games business worldwide.

EA said none of Jamdat's 350 employees would lose their jobs.

Jamdat earned $1.4 million on sales of $20.2 million last quarter; in the same period EA earned $51 million on sales of $675 million.

Less than 40% of the world's 1.5 billion or so handsets are equipped to play games. But that is changing. As handset technology improves, phones can deliver better graphics and more complicated game play.

"Consumers want entertainment on the go," EA Chief Financial Officer Warren Jenson said.

EA said it planned to publish more than 50 games for mobile phones in the first year after the deal closes. The union, subject to approval by Jamdat shareholders, is expected to result in a charge of 10 cents to 15 cents a share. EA hopes to complete the acquisition in its fiscal fourth quarter ending in March.

"EA has dipped its toe in the wireless gaming waters and so now they're making an acquisition, which will really vault them into the market," IDC analyst Schelley Olhava said. "They've made it very clear they see wireless gaming as a long-term growth area for them."

But not everyone is convinced that games and mobile phones are a perfect match.

In a Jupiter Research survey of 2,129 wireless subscribers last December, 7% said they paid for a cellphone game in the previous six months, compared with 15% who said they bought a ring tone. Of those who sprang for a game, only 2% said they bought more than one title.

Asked to choose from a list of a dozen features they would like to see in their next phone, the ability to play games ranked last.

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