Electronic Arts acquires Plants vs. Zombies maker PopCap for upwards of $1 billion

by Phil Hornshaw

The rumors proved true: Massive video game publisher Electronic Arts has snapped up PopCap Games, and the acquisition could have some ripples that affect the iTunes App Store.

The deal was announced today and will be finalized in August, according to a story from TechCrunch. EA is paying $650 million in cash and another $100 million in stock for the company, as well as a multi-year earn-out that could drive the price as high as $1.3 billion in the end.

Here’s a quote from EA’s press release:

EA CEO John Riccitiello said in a release: ‘PopCap’s great studio talent and powerful IP add to EA’s momentum and accelerate our drive towards a $1 billion digital business. EA’s global studio and publishing network will help PopCap rapidly expand their business to more digital devices, more countries, and more channels.’

Digital distribution is an area it seems EA is really pushing to gain ground. PopCap makes most of its revenue by selling PC games digitally – it makes titles such as Plants vs. Zombies, Bejeweled and Peggle, selling them mostly online. About 80 percent of what PopCap pulls-in comes from digital downloads. For EA’s part, it’s hoping to carve a niche in the digital market with its new Origin PC game download store, which it also intends to extend to iOS.

PopCap has also been very successful in the App Store, another place EA is hoping to make a big impression. Plants vs. Zombies has been particularly popular on Apple’s iOS platform, and adding PopCap’s games, including its new experimental label 4th & Battery, to EA’s stable will undoubtedly help boost the company.

TechCrunch has a really great rundown of how the earn-out will pay out for PopCap:

In terms of the earnout structure, PopCap sellers are entitled to additional cash bonus upon the achievement of certain non-GAAP earnings before interest and tax through December 2013. If the two-year cumulative earnings are $91 million or less, PopCap sellers won’t receive anything. If the earnings are $110 million, sellers will receive a total of $100 million. With $200 million in earnings, sellers get $275 million. And if earnings come in at $343 million or more, sellers get a whopping $550 million in earnout, making the total acquisition price $1.3 billion. EA says that it will also provide up to $50 million in long-term equity retention awards to PopCap employees to be granted over the next four years.

For game fans, the EA acquisition of PopCap could have some benefits of bringing more games to the App Store at more competitive prices. EA is known for slicing its prices to the bone for holidays, and its focus on expanding its grip on the App Store should hopefully result in lots of support for PopCap without a lot of interference with the developer’s success.

We’ll probably know more about EA’s plans in August when the acquisition becomes official. Until then, it might be a good time to watch PopCap and see what the company does with its App Store games leading up to coming under EA’s control.