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The brave souls running Electronic Arts (Nasdaq: ERTS ) had better stock up on ammunition and canned food -- because the zombies are coming.
Technically speaking, EA is buying privately held PopCap Games, the maker of casual online and mobile games like Plants vs. Zombies and Bejeweled. It's a blockbuster deal worth between $750 million and $1.3 billion in cash and stock, depending on how the new property performs under EA's wing. Given PopCap's proven success on platforms such as Facebook and Chinese equivalent RenRen (NYSE: RENN ) , I'd say the chances of hitting the top of those earn-out targets are pretty good. And if that was all, this would still be a pretty big deal.
But make no mistake: This deal is akin to the transformative merger that created Activision Blizzard (Nasdaq: ATVI ) or the insidious reverse buyout that Time Warner (NYSE: TWX ) once pulled on AOL (NYSE: AOL ) . Just as AOL was the buyer only to become a small division of the Time Warner machine and then spit back out on the market again, Electronic Arts could very well become a PopCap with a small side order of console games before too long.
That's the way the gaming industry is swinging nowadays, and EA must be aware of this trend. Buying PopCap will keep EA relevant as times keep a-changing:
- Casual-gaming expert Zynga is about to gain funding from a high-profile IPO and suddenly loom much larger on EA's horizon.
- Majesco Entertainment (Nasdaq: COOL ) is so deeply invested in the new style of gaming success that it popped more than 5% on news of the PopCap acquisition.
- Mobile game specialist and longtime EA partner Glu Mobile (Nasdaq: GLUU ) jumped even higher on this news because it's even closer to the action. Who's to say that the casual buyouts will end with PopCap?
EA shares are lagging an otherwise effervescent market today, showing that investors are somewhat skeptical of either the deal itself or the potentially rich price tag. That's a mistake. It's the first genuinely smart move I've seen from Electronic Arts in a very long time and exactly what the company needs.
The faster the PopCap zombies invade EA headquarters armed with brain-munching utensils and cans of Roundup herbicide, the better for EA investors. The first change on order: Remove all plants from the Sims product line.
Keep track of this transformative deal and other changes in the video game industry by making judicious use of your Foolish watchlist: