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Graham Griffin
Graham Griffin
Articles (190) 

EA Outbids Take-Two Interactive on Codemasters Deal

$1.2 billion offer irresistible for racing games developer

Electronic Arts Inc. (NASDAQ:EA) has announced an agreement to acquire British racing game publisher Codemasters Group Holdings PLC (LSE:CDM) with an offer of approximately $1.2 billion that far surpasses an offer from Take-Two Interactive Software Inc. (NASDAQ:TTWO).

In early November, Codemasters and Take-Two settled up on an agreement valued at close to $1 billion. EA upped the ante with a counteroffer that would give Codemasters shareholders 604 pence ($7.96) in cash for each ordinary share of Codemasters according to a press release from EA. The deal is expected to be completed in the first quarter of 2021.

Take-Two has announced that it is considering its position in relation to Codemasters and will make a further announcement regarding the deal when appropriate according to CNBC.

For Codemasters, the deal with EA comes with many benefits according to their Chairman Gerhard Florin:

"Electronic Arts and Codemasters have a shared ambition to lead the video game racing category. The Board of Codemasters firmly believes the company would benefit from EA's knowledge, resources and extensive global scale – both overall and specifically within the racing sector. We feel this union would provide an exciting and prosperous future for Codemasters, allowing our teams to create, launch and service bigger and better games to an extremely passionate audience."

Codemasters is well known for both its "Formula One," "Dirt" and "Dirt Rally" racing series. On Dec. 14, the stock was trading at 5.34 pound sterling ($7.12) per share with a market cap of 814.09 million pounds sterling. The Peter Lynch Chart shows that the stock has been trading close to intrinsic value for most of this year.

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For EA, the addition of Codemasters popular games will expand its existing catalogue that includes both the popular "Need for Speed" series that has enjoyed decades of success, alongside the popular "Real Racing" mobile games.

The publishing giant will also gain access to Codemasters acclaimed physics engines, which are used to determine the handling characteristics of vehicles in video games. This could prove invaluable as EA's recent "Need for Speed" releases have been criticized by both fans and critics for the subpar feeling of its vehicles.

Once the deal is finalized, EA will likely release the Codemasters games alongside its subscription service EA Play. The service gives gamers access to EA's games through a monthly fee, rather than buying games outright. Thanks to its availability through Microsoft (NASDAQ:MSFT), Sony (SNE) and Valve Software's Steam service, the service can be accessed by gamers on a variety of different platforms.

EA stock was trading at $138.06 per share with a market cap of $40.02 billion on Dec. 14. The GF Value Line shows that the stock is trading at a fairly valued level.

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Dislcosure: Author owns no stocks mentioned.

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