Murky Waters: Digging Beneath the Surface of EA’s Acquisition of Bioware/Pandemic

[Tianzi]

As some of you are already aware, EA (owner of Mythic and WAR) this October announced the purchase of the video game development studios Bioware and Pandemic. What you may not be aware of, or at least not thought much about, is the purchase price: US$860,000,000.

Well, I am certainly not an expert in the valuation of game development studios. But it’s rather interesting that Bioware and Pandemic were initially acquired for much less in November 2005 by a brand new investment firm named Elevation Partners. How much less? US$560 million less. Hmm. What has happened to increase the value of Bioware and Pandemic by such a large amount in less than two years?

Why is EA spending so much to acquire an RPG developer, when its new CEO John Riccitiello in 2007 famously announced, “We are boring people to death and making games that are harder and harder to play”? Sounds like he was beating the drum to push EA to make more “casual games”, not hardcore RPG’s like Bioware produces (not that I mind!).

Let’s keep the spotlight on Mr. Riccitiello a bit longer. Riccitiello was a founding partner of Elevation Partners in 2005 (in other words, an equity owner of it). Elevation Partners’ first investment was the purchase of Bioware and Pandemic for approximately US$300 million in Nov. 2005 (as mentioned above). As part of that deal, John Riccitiello became CEO of the holding company comprised of Bioware and Pandemic.

Now fast forward to 2007. Riccitiellio becomes CEO of EA. And then, just this month, EA, under the leadership of Riccitiello, pays Elevation Partners US$860 million for properties Riccitiello controls and (partially) owns, Bioware and Pandemic. Essentially, Riccitiello wore two hats and controlled both sides of the transaction, taking money from EA’s pocket (a publicly-listed and traded company) and putting it into his own.

Arms length transaction? Or did Riccitiello just walk away with millions of dollars in the smoothest shell game ever? You decide.

Sources:

“Elevation, Bioware, Pandemic Joining Forces” (Yahoo News) http://videogames.yahoo.com/news-409928 (http://videogames.yahoo.com/news-409928)
“Electronic Arts to Buy Video Game Developers” (Wall Street Journal)
http://online.wsj.com/article/SB119213265032356342.html?mod=hpp_us_whats_new (http://online.wsj.com/article/SB119213265032356342.html?mod=hpp_us_whats_new)
http://en.wikipedia.org/wiki/John_Riccitiello (http://en.wikipedia.org/wiki/John_Riccitiello)
http://en.wikipedia.org/wiki/Elevation_Partners
http://www.elevation.com/EP_news.asp
“EA Pays 860 Million for Hardcore Gamer Studio – But Why?”
http://gigaom.com/2007/10/12/ea-pays-860m-for-hardcore-gamer-studio-but-why/

[Feigro]

So essentially, Riccitiello is Emperor Palpatine. Not bad.

[Thoden Firehammer]

I correct you, EA doesn't own WAR, the project was started before the purchase of Mythic, and as such it's still Mythic's unless their contract stated otherwise, and it didn't.
Also GW would have pulled the plug...

[WarMachine]

And to control even more of the confusion, EA will not have control of Mass Effect eather, as BioWare is in contract with Microsoft (and I think they own some of the IP). The contract is for the entire trilogy.

BioWare's MMO is unknown, it hasn't been stated if they own it or another company owns it.

But I do know that BioWare is owner of Dragon Age (an RPG) and Jade Empire (another RPG) And has some Star Wars and D&D (ForgottenRealms only) rights, I'm not sure how much, as alot has ben transfered to Obsidion, though it was possible it was only temperarily for KOTOR II and NWN2. (and in all fairness NWN2 has been fixed with the new expansion)

[Boulvae]

Plus the amount of money to be made (with mass effect, and WAR on a lesser scale) might actually make up for the money loss but thats just a geuss.

US money ain't worth as much as it used to be.

[Garthilk]

BioWare's MMO is unknown, it hasn't been stated if they own it or another company owns it. Actually it's known. People just can't talk about it. :(

[WarMachine]

Actually it's known. People just can't talk about it. :(

A) thats some good sacasm....

Or

B) You know something most of us don't

A)lol... B) I'm envouse

But I've been part of the bioware forums sence the late 90's I think it is, and pretty much have owned every game they have made. I hope that counts for something when its time for their beta test.

[erloas]

A) thats some good sacasm....

Or

B) You know something most of us don't

A)lol... B) I'm envouse

But I've been part of the bioware forums sence the late 90's I think it is, and pretty much have owned every game they have made. I hope that counts for something when its time for their beta test.

Actually I think he was refering to the developers themselves. They obviously know about the MMO and what its about, but they can't talk about it. Much the same way as we don't currently know what the last 2 classes are for the DE and HE, that doesn't change the fact that its known somewhere.

[WarMachine]

Actually I think he was refering to the developers themselves. They obviously know about the MMO and what its about, but they can't talk about it. Much the same way as we don't currently know what the last 2 classes are for the DE and HE, that doesn't change the fact that its known somewhere.

That was "A", lol. It was a joke. But I didn't know if he actually knew something though.

[Tianzi]

I correct you, EA doesn't own WAR, the project was started before the purchase of Mythic, and as such it's still Mythic's unless their contract stated otherwise, and it didn't.
Also GW would have pulled the plug...

The official corporate announcements of EA's acquisition of Mythic refer to it as a "merger", not simply a change in ownership of a majority of Mythic's stock (which would have created a parent-subsidiary relationship between two separate companies). Since it was a merger, there is no longer an entity called Mythic that can own anything in its own right.

M&A can be confusing, so let me try to shed a little light on the subject.

When EA purchased Mythic through a corporate merger, it acquired everything that Mythic owned, and the old Mythic ceased to exist.

There is no longer an entity called Mythic that has any legal independance from EA. There is no separate company named "EA Mythic" or "Mythic". EA Mythic is simply a division of EA.

The Random House Dictionary definition of the word "merger" when used in its technical legal sense may be helpful to you:

1.a statutory combination of two or more corporations by the transfer of the properties to one surviving corporation.

EA owns all rights to WAR, except those retained/jointly owned by GW (and perhaps other third parties we don't know about, but not Mythic, which no longer has any independant existence).

[Baron Khaine]

The official corporate announcements of EA's acquisition of Mythic refer to it as a "merger", not simply a change in ownership of a majority of Mythic's stock (which would have created a parent-subsidiary relationship between two separate companies). Since it was a merger, there is no longer an entity called Mythic that can own anything in its own right.

M&A can be confusing, so let me try to shed a little light on the subject.

When EA purchased Mythic through a corporate merger, it acquired everything that Mythic owned, and the old Mythic ceased to exist.

There is no longer an entity called Mythic that has any legal independance from EA. There is no separate company named "EA Mythic" or "Mythic". EA Mythic is simply a division of EA.

The Random House Dictionary definition of the word "merger" when used in its technical legal sense may be helpful to you:

1.a statutory combination of two or more corporations by the transfer of the properties to one surviving corporation.

EA owns all rights to WAR, except those retained/jointly owned by GW (and perhaps other third parties we don't know about, but not Mythic, which no longer has any independant existence).

If Games Workshop pull the plug on this game, there won't be a Warhammer Online.

[Thoden Firehammer]

The official corporate announcements of EA's acquisition of Mythic refer to it as a "merger", not simply a change in ownership of a majority of Mythic's stock (which would have created a parent-subsidiary relationship between two separate companies). Since it was a merger, there is no longer an entity called Mythic that can own anything in its own right.

M&A can be confusing, so let me try to shed a little light on the subject.

When EA purchased Mythic through a corporate merger, it acquired everything that Mythic owned, and the old Mythic ceased to exist.

There is no longer an entity called Mythic that has any legal independance from EA. There is no separate company named "EA Mythic" or "Mythic". EA Mythic is simply a division of EA.

The Random House Dictionary definition of the word "merger" when used in its technical legal sense may be helpful to you:

1.a statutory combination of two or more corporations by the transfer of the properties to one surviving corporation.

EA owns all rights to WAR, except those retained/jointly owned by GW (and perhaps other third parties we don't know about, but not Mythic, which no longer has any independant existence).


Wrong again, Mythic is still a seperate developer and is now called EA Mythic, WAR belongs to mythic.

Mergers even though it may have a dictonary definition, the excating details of the merger are between the two companies and how mcuh they will merge is left up to them, and as we can see it was only a an exchange of resources from EA to Mythic, and Mythic to allow EA to take the proffits for WAR

[WarMachine]

EA owns all rights to WAR, except those retained/jointly owned by GW (and perhaps other third parties we don't know about, but not Mythic, which no longer has any independant existence).

I would have to say that the only rights to the the IP are mythic has a developmet contract, ad EA has publishing rights, and thats about it. GW owns ALL rights to their IP, and has exerted those rights twice in the past, and pulled the plug on two WH games, leaving the development team with only a bare engine and gameplay mechanics.

[Tianzi]

Wrong again, Mythic is still a seperate developer and is now called EA Mythic, WAR belongs to mythic.

Mergers even though it may have a dictonary definition, the excating details of the merger are between the two companies and how mcuh they will merge is left up to them, and as we can see it was only a an exchange of resources from EA to Mythic, and Mythic to allow EA to take the proffits for WAR

Seeing as how I am an attorney who has actually handled corporate mergers (albeit small ones between private companies), I am likely to know far more about it than you do. Upon what basis do you claim to understand anything about mergers, anyway?

In EVERY merger, there is **ONLY ONE** surviving company. If the press announcements by EA are to be believed and it acquired Mythic by corporate MERGER, there is no longer a separate company named Mythic with an existence independant of EA.

Here is the Wikipedia explanation of mergers:

"... In business (http://en.wikipedia.org/wiki/Business) or economics (http://en.wikipedia.org/wiki/Economics) a merger is a combination of two companies (http://en.wikipedia.org/wiki/Corporation) into one larger company ..."

A more complete explanation is found here:

http://en.wikipedia.org/wiki/Merger#Merger

But regardless of any of this, it is ludicrous for you to insist that Mythic, and not EA, is the owner of the proprietary rights to WAR (those not retained by Games Workshop).

[Thoden Firehammer]

I personaly don't give a damn who who are, I remember when we had someone who claimed to be a histroy major and claimed calvary was useless in battle.


I see no reason for Mythic to lie to us on such a stupid matter.

I also don't understand why you care so much about this, i'd just like the game to be made.

[spirit]

I personaly don't give a damn who who are, I remember when we had someone who claimed to be a histroy major and claimed calvary was useless in battle.


I see no reason for Mythic to lie to us on such a stupid matter.

I also don't understand why you care so much about this, i'd just like the game to be made.



They haven't lied to us. They are still developing it. EA just own them and provide them money, but have been sensible enough to know when to leave a good thing be.

It's like if I bought Wilkinson and all his coaches. I wouldn't go telling him how to kick, I'd let him kick and just rake in the money off it. I have the sense to know that if I interfered I would just end up ruining his kicking and lose money for myself.

Nice topical hypothetical situation there. And ignore Wilkinsons lapse on kicking recently, it doesnt matter. And if you're a yank who doesn't understand, replace the name Wilkinson with...I dunno, some random American Football player who is very good.

[Ruinx]

I personaly don't give a damn who who are, I remember when we had someone who claimed to be a histroy major and claimed calvary was useless in battle.

I see no reason for Mythic to lie to us on such a stupid matter.

I also don't understand why you care so much about this, i'd just like the game to be made.

Hehehe I remember that dude.

But Thoden, I don't remember ANY quotes from Mythic saying either:

A) We could break away from EA if we wanted to.

or

B) WAR is owned by Mythic, not EA.

I mean, you can say "Well I believe it isn't!" but that's a belief like any other unless you back it up with some quotage, and yes I did search to see if I could find any. I couldn't. I don't think they've lied at any point. They've simply said that they negotiated their deal, and that it gives them considerable control and independence, and I absolutely believe that. However, without evidence, I find it impossible to believe that EA would fail to gain control of the major and only property the studio it purchased is actively developing. I mean, Microsoft but XX million into helping develop Mass Effect, but note that THAT is now an EA property, not a Bioware one.

Tianzi - Well, I wondered much the same thing and thought it was what a lot of articles seemed to be implying, but I somehow doubt he's pocketed the $500 million personally. More likely a small fraction thereof (prob. in $20 million range, tops, which is nothing to sneeze at, admittedly).

Garthlik - You're a dreadful tease. It's a pretty dead cert that it's either Star Wars or Fallout, from the evidence. Some have suggested it's a Bioware IP, but I'd be really surprised, because all of their non-licensed IPs are kind of weak.

However, BioWare have specifically mentioned that they want a "global" game, and whilst SW might fit that, Fallout probably doesn't, but there's one wierd fact. Gordon Walton (one of the two heads of BioWare Austin, the MMO studio), owns falloutonline.com - Now, it's possible that's his way of being funny or misleading, but it is a bit odd. The reason to believe SW is that SOE have had their SW MMO license pulled (apparently).

I guess the other possibility would be Jade Empire, but martial arts ain't what they used to be, and whilst such a game would definately be "global", it might be rather a "global flop".

Another vague possibility would be that they have the license for a Dungeons and Dragons 4th Edition MMO. D&D 4E is vastly more "MMO-friendly" in it's design than 3E was, particularly as most abilities are "per encounter" now, not "per day". This would explain the silence, but honestly, I'd be a little surprised.

Bah, I bet you can't even say "No you're totally wrong!" or "Shut up before the ninjas kill you!" eh Garth?

[Tianzi]

Hehehe I remember that dude.

But Thoden, I don't remember ANY quotes from Mythic saying either:

A) We could break away from EA if we wanted to.

or

B) WAR is owned by Mythic, not EA.

I mean, you can say "Well I believe it isn't!" but that's a belief like any other unless you back it up with some quotage, and yes I did search to see if I could find any. I couldn't. I don't think they've lied at any point. They've simply said that they negotiated their deal, and that it gives them considerable control and independence, and I absolutely believe that. However, without evidence, I find it impossible to believe that EA would fail to gain control of the major and only property the studio it purchased is actively developing. I mean, Microsoft but XX million into helping develop Mass Effect, but note that THAT is now an EA property, not a Bioware one.

Tianzi - Well, I wondered much the same thing and thought it was what a lot of articles seemed to be implying, but I somehow doubt he's pocketed the $500 million personally. More likely a small fraction thereof (prob. in $20 million range, tops, which is nothing to sneeze at, admittedly).

Garthlik - You're a dreadful tease. It's a pretty dead cert that it's either Star Wars or Fallout, from the evidence. Some have suggested it's a Bioware IP, but I'd be really surprised, because all of their non-licensed IPs are kind of weak.

However, BioWare have specifically mentioned that they want a "global" game, and whilst SW might fit that, Fallout probably doesn't, but there's one wierd fact. Gordon Walton (one of the two heads of BioWare Austin, the MMO studio), owns falloutonline.com - Now, it's possible that's his way of being funny or misleading, but it is a bit odd. The reason to believe SW is that SOE have had their SW MMO license pulled (apparently).

I guess the other possibility would be Jade Empire, but martial arts ain't what they used to be, and whilst such a game would definately be "global", it might be rather a "global flop".

Another vague possibility would be that they have the license for a Dungeons and Dragons 4th Edition MMO. D&D 4E is vastly more "MMO-friendly" in it's design than 3E was, particularly as most abilities are "per encounter" now, not "per day". This would explain the silence, but honestly, I'd be a little surprised.

Bah, I bet you can't even say "No you're totally wrong!" or "Shut up before the ninjas kill you!" eh Garth?

Hi Ruinx,

According to an article I read after making the OP, Riccitiello claims his personal financial gain stemming from the deal is US$4.95 million. Of course, it might be more than that (some of the other shareholders in Elevation Partners might be "straw men" ultimately under his control) , but that's the amount that's been disclosed.

EA's stocks have significantly increased in value after the deal was announced, so for the time being, it seems to have been a good thing for EA.

I think Thoden's misunderstanding is rooted in his not understanding that when a company is purchased, the buyer then owns all of the property and rights previously owned by that company. Perhaps he (wrongly) imagined EA and Mythic to have entered into some kind of "partnership of equals".

Thoden, Mythic was purchased by EA for US$76 million dollars. EA now owns whatever Mythic previously owned.

Here is the official announcement, entitled "EA TO ACQUIRE MYTHIC ENTERTAINMENT":

http://www.mythicentertainment.com/press/06202006EAMythic.html

You will note that per the announcement, EA Mythic is wholly-owned, i.e. 100% owned, by EA. It isn't clear from the announcement if EA Mythic is a division of EA and therefore an "arm" of that company, or if EA Mythic is a wholly-owned subsidiary company of EA. It may be there wasn't an actual merger, but that isn't important. Either way, EA completely owns and controls whatever Mythic used to own in the WAR IP.

If you don't care about this topic and only care about WAR being finished, as you claim, please don't make any further posts in this particular thread--this entire OFF TOPIC forum is devoted to things other than WAR. Thank you.

[WarMachine]

I think the biggest part of the debate is weather EA or even Mythic owns any actuall rights to WH other than the right to make it, which has been shown in the past that GW can revoke the right.

[Tianzi]

My interest in this topic has been renewed by the recent announcement of a large-scale corporate "restructuring" of EA, following in the immediate wake of this acquisition. Apparently, this "restructuring" will principally involve the firing of employees working in EA's development studios--and Mythic is a specifically named target for this "pruning". And let's not forget the recent, abrupt shuttering of WAR's beta servers.

Perhaps the close proximity in time between these three events is not coincidental. After all, this is by far and away the most money ever paid for an acquisition involving game development studios (previously, the most ever paid was about US$375 million by Microsoft).

Returning to my original post, I wonder again at what motivated paying US$860 million for companies that had been purchased for US$300 million just two years before. To what extent did Riccitiello's greed drive the acquisition, and its inflated purchase price?

EA reported to the SEC that Riccitiello would personally profit by up to US$4.9 million from the deal. Riccitiello may have stepped down from his position as an officer at Elevation Partners and the holding company comprised of Bioware/Pandemic prior to coming on board as CEO of EA. However, more importantly Riccitiello remained a partner in (and owner of) Elevation Partners and a member of its Board of Directors, and presumably a very important one--he was a founding partner and its first General Manager. The extent of his direct and indirect stakeholding in Elevation Partners, and the degree to which that grants him control over the entity, has not been disclosed.

Riccitiello wasn't EA's CEO when the decision was made to purchase Mythic and gain control of its WAR IP. Riccitiello is a guy whose background is in mass-produced goods--prior to serving as EA's CEO, he acted as an executive officer in companies such as Clorox, Pepsi, Wilson Sporting Goods, and Sarah Lee. He is a notorious "axeman" with a penchant for touting the virtues of downsizing, but has less to say about the importance of quality.

Now that Riccitiello has seen to it that EA needs to "tighten its belt", is he likely to appreciate the massive amount of work required to release a Grade-A MMO, and in particular, the number of staff required to pull this off? And now EA has a second MMO in development to fund, courtesy of the Bioware acquisition.

[Ruinx]

Now that Riccitiello has seen to it that EA needs to "tighten its belt", is he likely to appreciate the massive amount of work required to release a Grade-A MMO, and in particular, the number of staff required to pull this off? And now EA has a second MMO in development to fund, courtesy of the Bioware acquisition.

That's the real reason to be somewhat concerned, isn't it? The potential worry is especially strong if BioWare's MMO is:

A) As far along in development as they claim (it's "playable" and "fun" already, apparently)

and

B) In direct competition with WAR, market-wise. I.e. it's a class and level-based MMO with a fantasy or space fantasy setting and strong PvP/RvR elements.

If both A and B are the case then from Riccitiello's perspective, it may well make sense to "cut" Mythic, first reducing their investment in the project (which could be catastrophic as Mythic might be counting on that investment), and then perhaps cutting Mythic off more or less entirely, once WAR releases.

Of course, that's doomsday nonsense at this stage, but it is not an entirely illogical train of thought.

What we can hope is, really, that BioWare's MMO is either science fiction-based (i.e. KotOR, Mass Effect or Fallout) and/or actually much further from release than they've implied. I sincerely hope, myself, that it's KotOR or Mass Effect, and that it's 2+ years out (didn't BioWare mention a 2009 release date lately?). If it's D&D4E or another "medieval fantasy" license and less than 12 months from completion (which admittedly seem unlikely), then I can certainly see EA's potential temptation to cut WAR down to a smaller size and use it mainly to spoil the WotLK release/break WoW's hold on the market more than as a long-term investment.

[Federline]

I think Thoden's misunderstanding is rooted in his not understanding that when a company is purchased, the buyer then owns all of the property and rights previously owned by that company. Perhaps he (wrongly) imagined EA and Mythic to have entered into some kind of "partnership of equals".



If you don't care about this topic and only care about WAR being finished, as you claim, please don't make any further posts in this particular thread--this entire OFF TOPIC forum is devoted to things other than WAR. Thank you.


HAHAHA owned. Yeah pls. forgive Thoden . I swear to god that guy has a PhD in Warhammer Lore and thinks he is some kind of authority when it comes to forum trolling ( see his signature) . Too bad when it comes to real life issues ( the ones that really matter) I doubt he could keep up a conversation with anyone above the age of 10 . :p

[Baron Khaine]

HAHAHA owned. Yeah pls. forgive Thoden . I swear to god that guy has a PhD in Warhammer Lore and thinks he is some kind of authority when it comes to forum trolling ( see his signature) . Too bad when it comes to real life issues ( the ones that really matter) I doubt he could keep up a conversation with anyone above the age of 10 . :p

Ah dude, you come into this thread saying that he's an authority when it comes to trolling, and then you insult, I actually thought you might be older than 12, guess I was wrong.

[Razor Boy]

Garthlik - You're a dreadful tease. It's a pretty dead cert that it's either Star Wars or Fallout, from the evidence. Some have suggested it's a Bioware IP, but I'd be really surprised, because all of their non-licensed IPs are kind of weak.


Bioware making a Fallout MMORPG?! I don't see how it's possible, but if it is possible it would mean the end of my free time as I know it! (Also, this is the first time I hear Fallout MMO being considered as one of the contenders for the title of Bioware MMO. Where'd you hear that anyways?)

[Ruinx]

Bioware making a Fallout MMORPG?! I don't see how it's possible, but if it is possible it would mean the end of my free time as I know it! (Also, this is the first time I hear Fallout MMO being considered as one of the contenders for the title of Bioware MMO. Where'd you hear that anyways?)

From the fact that one of the two top people at BioWare Austin purchased the FalloutOnline.com domain a while back. However I now believe that was a joke/smokescreen for the actual property. A Fallout MMO is being developed, allegedly, by Interplay, but what stage it's at and who is actually developing it is entirely unclear (which, combined with the falloutonline.com business, is what would lead people to think BioWare might be involved - considering that they're now owned by EA and working with LucasArts it seems unlikely that they're ALSO involved with Interplay though).