As posted a few days back that rumors came up Microsoft was in talks with EA about acquisition, gamasutra.com released a very interesting article about why EA is (at least right now) no target for acquisition.

Perhaps the most frequent subject of such rumors, though, is Electronic Arts. The publisher suffered from last year’s crowded holiday and cautious consumer and had to undergo restructuring, and there’s been a strain on the share price ever since, as analysts often wonder whether the publisher’s future portfolio is any stronger.

Couple this with the buy-friendly climate, and rumors of “big media acquiring EA” are cropping up quite a lot lately. Recently, finance sector buzz pegged Microsoft as ready to snap up the publisher — a rumor so unfounded and so widely-circulated that Microsoft made the unusual move of publicly stating it had no such intentions.

Cowen Group analyst Doug Creutz is not particularly positive on EA’s near-term prospects. Citing weaknesses in the release slate, he recently lowered his expectations for the publisher’s earnings from $0.80 to $0.67 per share and said it “has largely missed this console cycle.”

Even still, the major publisher is not an acquisition target, says Creutz, and he told Gamasutra why:

It’s too expensive.

EA is probably not a seller at a price a major media company would find attractive,” says Creutz. “Current management team came in with stock at $50+; to sell at $25 or so would be a major admission of defeat.

It’d make an acquirer look bad on paper. It all has to do with how it reports earnings, versus how its potential acquirers report them.

EA reports earnings on a non-GAAP basis,” the analyst explains. “On a GAAP basis, they have been a money-loser for 3 years. Major media companies report on a GAAP basis, so an acquisition would be massively dilutive.

Integration would be too challenging. Big media has generally moved into video games gradually, exploring first partnerships and then nurturing internal businesses before making individual studio buys. But EA is a conglomeration of several kinds of game businesses — publishing, distribution, online, and a global studio network of variegated developers. This creates

huge integration risk

according to Creutz.

None of these companies have experience running a big video game unit

he notes.

Investors are tired of big buys.

Major media companies have gotten repeatedly pilloried by investors for having done big capital-destroying acquisitions over the past 10-15 years — think AOL. Investors would view this as more of same; managements understand buying EA would likely mean a big haircut to their stock price, as investors would view it as a writedown-in-waiting.

Acquirers don’t have the cash on hand. Whether or not one company can afford another comes down to much more than an apples-to-apples comparison of their respective values — and for many big media companies, the outlook’s as uncertain as some analysts find EA’s to be.

Several of the media companies don’t really have the capital firepower to do such a big deal right now, as the outlook for their business remains very mixed

Creutz says.

They wouldn’t really get much out of it. Acquisitions are about synergies, after all, but the way in which EA allocates its expenses and investments is entirely different from the areas big media currently examines. There are

few cost overlaps, hence few costs to cut, and no real revenue synergy either. You’re just buying another business, and hoping you can run it better than current management.

In the analyst’s opinion

While EA management hasn’t done a great job, there’s no indication that a major media management team would do a better job — and more likely the contrary would be the case.

Head over to gamaustra to read the whole article.

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