Last month the stock market rumor mill seemed to be working overtime when it came to the game industry.  Publishing giants EA, THQ and Take-Two began showing up in financial media as possible acquisition targets, sparking share prices to respond as rumors spread and were then quelled.   Reporting for Gamastura, Leigh Alexander takes a look at why the game industry has suddenly become the focus of murmurs about mergers and acquisitions by big media or big tech.  She cites it as a possible coming of age in Wall Street’s eyes for the game industry as a viable long-term sector.  It s also a sector that suddenly saw a dip after years of sustained growth.  That hit, blamed on the economic recession, could be at the core of it.  As traders are suddenly seeing more attractive share prices for game publishers, that might be causing them to wonder if a big company might not swoop in or expand their current hold on the sector.

Alexander turns her focus to the biggest player in the recent round of rumors, EA.  She sees EA s attractiveness as a buyout target stemming from the company’s recent troubles, where worse than expected sales of even its strongest franchise Madden have put pressure on its share price.  Yet acquisitions aren’t just about stock market value.  Can an organization like EA be successfully merged into a giant media or tech conglomerate   Alexander talks to Cowen Group analyst Doug Creutz, who isn’t positive on EA’s long-term outlook nor sees it as a good bet as an acquisition target.

Creutz sees EA management pricing an acquisition as too expensive, given the higher share prices at which many of them came into the company.  He says when the current team joined the company, EA shares were priced at more than double of where they re trading at today.  The company would also be expensive on paper to the buyer based on how EA reports earnings outside of Generally Accepted Accounting Principals, which a large company acquiring EA would likely adhere to in the way they report.  Other challenges are rooted in the current economic climate, where capital is at a premium and subsequently so is the appetite for big buys.  Perhaps the biggest challenge to any buyer looking at EA is integration, as Cruetz sees it.  The company’s many operations, from development and publishing to how it serves so many various and varied areas of the game business, make it a risk for anyone outside of the game industry.  That variety and specialty of EA’s businesses also affects consolidation synergies (read: cost-cutting) that influence most big companies in their acquisition decisions.

Alexander also talks to Michael Pachter of Wedbush Morgan.  While Pachter agrees with Cruetz’s analysis that EA is not a buyout target, he thinks it’s a matter of now rather than never.  He also counters the assertion that EA will continue to disappoint, saying the company is poised to turn around four years of losses.

Read the full article at Gamasutra {link no longer active}.