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Electronic Arts has been the rumor mill's favorite grist for years-- but in recent weeks, the company has found itself the subject ofeven more whispers than usual. Reports that Nexon was planning a bid for the company proved to be a significant misunderstanding by a major news outlet, but with the company's revelation Mondaythat subscribers to Star Wars: The Old Republic are leaving at an alarming pace and that the future earnings outlook is tepid , those takeover talks may be resurrected. EA shares are taking a hit today on yesterday's revelations -- downsome 6 percent (which, admittedly, is better than the 10 percentdrop that came in after-hours trading yesterday). Shares openedTuesday at $14.25, a level the company hasn't seen since July 1999.In the past five years, EA shares have lost nearly 70 percent oftheir value. A lot of that loss is tied to the broader economic downturn, butthere's plenty of blame on EA's side. While it has had its share ofhits, it hasn't published a new category-defining title for a longtime -- and it has lost several strong members of its managementteam to companies like Zynga. Meanwhile, the publishing side of thebusiness -- the bread and butter for any traditional game company-- continues to be battered by sluggish retail sales. There are some advantages, though. EA has bet heavily on digitaldistribution and has expanded its focus into other areas, such asmobile, that are starting to show payoffs. The numbers speak forthemselves: In the first fiscal quarter of 2011, EA recordeddigital revenue of $209 million. In the second quarter, that jumpedto $216 million, then $377 million in the third quarter. And itwrapped up the year with $425 million in digital revenue. That speaks well for Origin, which (with 11 million registeredsubscribers) is still dwarfed by Steam, but still produces ahealthy income (generating $150 million in 10 months). Also, while EA could be pointed at as one of the reasons mobile andsocial developers are being paid astronomical amounts of cash intoday's buyouts, it has finally realized the ridiculousness ofthose valuations and isn't likely to be jumping into the fray againsoon. "We don't need to buy a brand just to get a temporary lead on topof the charts for whatever is hot this quarter," said CEO JohnRiccitiello on yesterday's earnings call. "That doesn't mean thatwe would never buy or never invest. We would. But right now, whatI'm starting to see is valuation expectations that assume thatthese things are all hockey stick moving up into the right with noend in sight, and I think those are bad assumptions." So there are definite pros and cons to the company. The questionis: Does this make it an attractive target for potential buyers? The answer is yes -- and no. Unlike THQ, EA is a company that has a lot of successful franchisesthat it owns outright. And, unlike some publishers who largelyfocus on a single genre, it's diversified, having seen success insports, action, RPGs and more. Couple that with the depressed stockprice and it's virtually impossible to imagine no one iscontemplating a bid. Forget other U.S.-based publishers. Only Activision Blizzard wouldbe in a position to even contemplate a bid these days, and evencasual observers of this industry know how unlikely that is. Overseas publishers, though, are more cash rich, and could beviable candidates. Adding EA to their holdings would give them astrong U.S. presence and help them expand their properties intoNorth America. But I keep coming back to major entertainment conglomerates as themost likely suitors. Fox is making a new push into gaming as itembraces the transmedia lifestyle, and EA has several IPs that havebox office potential. And Disney could easily integrate the otherEA Sports franchises into ESPN as thoroughly as it has woven Maddeninto the network. (Plus, EA's increased digital focus would meshnicely with Disney Interactive Studio's current mission.) Not everyone agrees, of course. "The major media companies wouldn't touch it with a 10 foot pole,because they don't want to be associated with the volatile earningsof a video game company," says Eric Handler, senior equity analystfor MKM Partners. "They're all going social now, they don't want todeal with console games." The hurdles for the deal, though, are substantial. EA has over 331million shares outstanding -- meaning any bid would have to beenormous to be seriously considered. It's unlikely the companywould seriously entertain anything under $25 (which is about avaluation that's roughly 64 percent over its stock price -- thesame premium EA offered Take-Two in 2008). Any takeover would also likely hasten the exodus of seniormanagement. And while it's fun for gamers to take shots at EA, thecompany has an experienced executive suite -- something that'shelpful in a rocky period (even if execution by that team has beenspotty at best recently). So is EA a takeover target? In the short term, that's unlikely. Thecons outweigh the pros and there are a lot of uncertainties loomingin the next couple of years. (Will the next generation consoleshelp the company rebound? Will the digital initiative continue tobear fruit? Will the increased focus on mobile, social and free toplay boost the bottom line?) But EA is a company that has failed to deliver for its shareholdersagain and again. Analysts are still acting as apologists for it,but even they are showing signs of frustration. With a few keystumbles and another major hit to the stock, EA could find itselffighting to remain in charge of its own destiny. Related news: EA eases controversial penalty for banned Origin users 'Strange Ideas': EA's strategy for fostering innovation EA brushes off 'Worst Company in America' label. I am an expert from neon-ropelight.com, while we provides the quality product, such as LED Illuminator , Side-light Fiber Optic Manufacturer, LED Curtain Light,and more.
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