EA to pay $860M for rival game maker

NEW YORK (CNNMoney.com) -- Videogame-maker Electronic Arts said Thursday it is buying rival VG Holding Corp. for $860 million.

VG Holding is the owner of both BioWare Corp. and Pandemic Studios, both videogame makers.

"This acquisition gives EA a strong competitive position in key genres in interactive entertainment: action, adventure and role-playing games," EA said in a statement.

BioWare and Pandemic have 10 games under development, including six wholly owned games, EA said in its statement.

BioWare Corp. is currently developing Mass Effect, set to be published by Microsoft in November and is in the early development stages of a multiplayer online game.

Pandemic Studios has the upcoming multiworld games Mercenaries 2: World in Flames and Saboteur, in addition to several unannounced projects.

"I think they needed to do it," said Daniel Ernst, an analyst at Soleil-Hudson Square Research. "EA has a nice cash balance, and they are trying to stay on top of the market. To do that, you need games to sell."

Ernst credited BioWare Corp. with having a top-notch design team but said the real question is seeing which employees stick around after the deal.

"That's always the question when you buy talent," he said. "Talent goes out the door every day."

EA said it will pay up to $620 million in cash to the stockholders of VGH and will issue up to an additional $155 million in equity as management retention arrangements to certain employees of VGH, which will be subject to time-based or performance-based vesting criteria.

EA will also assume outstanding VGH stock options, valued at around $50 million. In addition, EA has agreed to lend VGH up to $35 million through the closing of the acquisition.

The purchase is expected to take 30 to 40 cents per share off EA's 2008 earnings.

Share in Electronic Arts (Charts) fell 2 percent in after hours trading.

About 800 people work for Pandemic Studios and BioWare Corp. in four studios located in Edmonton, Canada, Los Angeles, Austin, Texas, and Brisbane, Australia.