What happened
Shares of Electronic Arts (EA 1.30%) gained 17.5% in May, according to data from S&P Global Market Intelligence. The surge started with a robust earnings report. Later on, the momentum was boosted by reports about a potential buyout.
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So what
EA's fiscal fourth-quarter sales rose 36% year over year, landing at $1.83 billion. Earnings jumped from $0.26 to $0.80 per share. The results were better than management guidance across the board, with higher revenue and lower expenses than expected. The video game producer also spent $325 million on repurchasing stock during the quarter, resulting in a share count just below the guidance target.
Your average analyst had been looking for earnings near $1.46 per share on top-line revenue in the neighborhood of $1.77 billion, so EA fell short of Wall Street's targets. However, several analysts said that the report was roughly comparable to expectations, and EA's stock closed 8% higher the next day.
Two weeks later, the news hub Puck reported that EA has held merger talks with several big names in the media and consumer goods industries. Several video game giants are in the process of big-ticket buyouts right now, but EA still stands alone. The company allegedly explored business combinations with powerhouses Apple, Walt Disney, and Amazon, among others.
The talks have not resulted in any public buyout offers, and EA executives have not addressed these reports. You know the drill: "We don't comment on rumors and speculation relating to M&A," EA told several curious media outlets over the last couple of weeks. Still, investors were excited about the buyout idea and share prices rose 5% on the day of the Puck article.
Now what
So EA's business is enjoying solid sales and disciplined cost controls, and it looks like management is exploring a merger just in case things turn sour. It's always good to have a plan B in your back pocket, but I don't expect a merger anytime soon.
According to Puck, EA is not really interested in any deal that doesn't let CEO Andrew Wilson keep the top title for the combined company. The giants mentioned earlier are unlikely to pull the trigger on that kind of radical deal, so the company would be more likely to shack up with a smaller media company.
Either way, EA's impressive list of blockbuster gaming franchises should keep the company healthy for years to come -- either alone or together with some merger partner.
