Third-party powerhouse Electronic Arts purchases Pandemic and Bioware, two of the largest private game development studios.

Electronic Arts today announced an agreement with investment fund Elevation Partners to acquire VG Holding Corp., the parent company of both BioWare Corp. and Pandemic Studios. This acquisition gives EA a strong competitive position the genres of action, adventure and roleplaying games.

BioWare and Pandemic Studios have 10 combined franchises under development, including six wholly-owned games. BioWare is currently responsible for the highly anticipated Mass Effect, which will be published by Microsoft in November, and is also in the early stages of an MMOG. Pandemic Studios is working on open-world titles such as Mercenaries 2: World in Flames and Saboteur. Pandemic Studios and BioWare employ roughly 800 people across four studios located in Edmonton, Canada; Los Angeles; Austin; and Brisbane, Australia.

“These are two of the most respected studios in the industry and I’m glad to be working with them again. They’ll make a strong contribution to our strategic growth initiatives on quality, online gaming and developing new intellectual properties.We also expect this will drive long-term value for our shareholders,” said John Riccitiello, EA’s Chief Executive Officer.

Pandemic Studios is led by Andrew Goldman, Josh Resnick and Greg Borrud. BioWare is jointly led by Greg Zeschuk and Ray Muzyka. These teams will join the EA Games label run by Frank Gibeau, President of EA Games.

Josh Resnick, President and Co-founder of Pandemic Studios, said, “Pandemic Studios remains focused on attracting the best talent and creating blockbuster action games. As a worldwide publishing leader, EA represents the ideal partner to bring our titles to market as global entertainment events.”

“We are truly excited by John Riccitiello’s new vision for EA. This vision is consistent with BioWare’s focus on crafting the highest quality story-driven games in the world. It will enable us to further the careers of the passionate, creative and hard working teams at BioWare Edmonton and BioWare Austin,” added Ray Muzyka, Co-founder and Chief Executive Officer of BioWare Corp.

EA will pay up to $620 million in cash to the stockholders of VG Holding Corp. and will distribute up to an additional $155 million in equity to certain employees of VG Holding Corp., subject to time-based or performance-based vesting criteria. EA will also assume outstanding VG Holding Corp. stock options and lend VG Holding Corp. up to $35 million through the closing of the acquisition. The process is subject to the customary closing conditions, including government regulatory approvals, but is expected to close in January 2008.

Earnings for the fiscal 2008 year will be diluted by approximately $0.30 to $0.40 due to non-recurring acquisition-related charges, stock-based compensation and amortization of intangible assets. Prior to the announcement, shares of EA fell $1.07 to $58.84, and are likely to drop tomorrow due to the sizable cost of the acquisition.

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