E LECTRONIC A RTS, I NC. P OTENTIAL M ERGERS & A CQUISITIONS M&A committee: Kaitlyn Emerick, Jasmine Fortune, Claire Lin, Patti Mansbach, Helen Tse.

ELECTRONIC ARTS, INC. POTENTIAL MERGERS &

ACQUISITIONSM&A committee: Kaitlyn Emerick, Jasmine Fortune, Claire Lin,

Patti Mansbach, Helen Tse

EA Potential Targets

Akamai Jasmine Fortune

Ubisoft Patti Mansbach

Take Two Helen Tse

Zynga Claire Lin

Electronic Arts-Acquirer

Kaitlyn Emerick

Online and mobile is where the gaming industry is headed

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EA Transition to Online and Mobile Games

● Traditional gaming company: Microsoft’s Xbox, Sony’s PlayStation, and Nintendo Wii

● Popular games: Madden NFL Series, Battlefield, Titanfall and The Sims

● Acquired PopCap games in 2011 for $750M○ Big break into mobile and online gaming○ Market cap before: $8 billion○ Current market cap: $9 billion

EA Healthy Past Operating Cash Flows

2010 2011 2012 2013

$152M $320M $277M $324M

EA Cost of Capital

Weighted Average Cost of Capital 15%

Cost of New Long-Term Debt 5%

Weight of Long-Term Debt10%

Shareholders’ Required Rate of Return 18%

EA Increasing Free Cash Flow

2014 2015 2016 2017 2018

$506M $308M $334M $386M $453M

Terminal Value $13B

$13.5B

Critical Assumptions

2013 2014-2018

Sales Growth -8% 18%

Costs of Goods as % of Sales 37% 33%

R&D as a % of Sales 30% 31%

EA is Fairly Valued

Estimated Value per share $28

Current Market Price as of 4/24/2014 $28

Current Market Capitalization $9B

● EA stock will not be used to acquire companies

EA Acquisition Budget

EA Budget

Cash $1B

Free Cash Flow $228M

New Debt $700M

Total Budget $2B

Debt Capacity

Current debt: $633M in convertible bonds due in 2016 with conversion price of $31.74

EA Potential Mergers & Acquisitions

Akamai Jasmine Fortune

Ubisoft Patti Mansbach

Take Two Helen Tse

Zynga Claire Lin

Akamai Technologies, Inc.

● Leading Provider in cloud services○ Superior delivery○ Optimization○ Security content online

● Serves a wide range of customers

Akamai Alta 2.0 May Create $4.4 M

● Alta 2.0: an updated version of web accelerator solution

● Initial cost: $1.2M ○ Net present value: $4.4M○ Payback period: < 1 year

Critical Assumptions Forecasted 2014

Number of solutions sold 1,300

Sales growth 5%

Price per solution $600,000

Akamai Healthy Past Operating Cash Flows

2010 2011 2012 2013

$402M $444M $530M $565M

Akamai’s Cost of Capital

Weighted Average Cost of Capital 20%

Cost of New Long-Term Debt 4%

Weight of Long-Term Debt10%

Shareholders’ Required Rate of Return 24%

Akamai Increasing Free Cash Flow

2014 2015 2016 2017 2018

$665 M $913 M $1.6 B $2.1 B $2.9 B

Terminal Value $12.6B

$15.5 B

Critical Assumptions

2013 2014-2018

Sales Growth 15% 22%

Property as % of sales 29% 31%

Akamai Stock is fairly valued

Estimated Value per share $53

Current Market Price as of 4/24/2014 $53

Current Market Capitalization $9.6B

Shares Outstanding 179M

Premium 20% $63

Purchase Price $11.3B

Akamai will not be acquired

● EA cannot afford Akamai at this time● Akamai’s estimated share price is too high

Ubisoft is in the European Market

● Based in Paris, France. ● 129 offices worldwide.

● Largest is in Montreal, Canada.

● Acquiring Ubisoft could increase cash flows in the European market for EA.

Ubisoft Will Be a Successful Cross-Border Acquisition

● Only 17% of cross-border mergers and acquisitions create shareholder value.

● EA will create incentives for the key people at Ubisoft to stay.

Ubisoft Voice Over IP May Create €8 M

● Implement a voice over IP system for international phone calls.○ Initial cost: €1.5M○ Net present value: €8M○ Payback period: <1 year

Critical Assumptions Forecasted 2014

Euro Per Dollar Rate €0.75/$

Hours Spend on the Phone Per Employee Per Year

130

Telecom Company Cost Per Minute

€0.09

Ubisoft Healthy Past Operating Cash Flows

2010 2011 2012 2013

€241M €392M €358M €400M

Ubisoft Cost of Capital

Weighted Average Cost of Capital 19%

Cost of New Long-Term Debt 5%

Weight of Long-Term Debt15%

Shareholders’ Required Rate of Return 20%

Ubisoft Increasing Free Cash Flow

2014 2015 2016 2017 2018

€484M €627M €800M €1B €1.2B

Terminal Value €6.7B

€8B

Critical Assumptions

2013 2014-2018

Sales Growth 18% 25%

Costs of Goods as % of Sales 27% 27%

R&D as a % of Sales 35% 37%

Ubisoft is Undervalued

Estimated Value per share €18

Current Market Price as of 4/24/2014 €13

Current Market Capitalization €1.35B ($1.8B)

Shares Outstanding 96M

Premium 20% €15

Purchase Price €1.5B ($2B)

Ubisoft could be bought at a later time

● Ubisoft is not in the online and mobile industry.

● Just because we can afford to acquire them, does not mean we should.

● Should invest in online and mobile before we expand internationally.

Take Two Interactive Software Inc

● Leading developer, marketer, publisher of video game products○ Grand Theft Auto (GTA)○ BioShock Infinite○ NBA 2k14

Take Two GTA VI May Create $871 M

● Create Grand Theft Auto VI○ Initial cost: $8.2M○ Net present value: $871M○ Payback period: < 1 year

Critical Assumptions Forecasted 2016

Units Sold 40M

Quality & Assessment $1.3M

Marketing/Promotions $535,000

Take Two Improving Past Operating Cash Flows

2010 2011 2012 2013

$(136)M $135M $(85)M $(5)M

Take Two Cost of Capital

Weighted Average Cost of Capital 16%

Cost of New Long-Term Debt 5%

Weight of Long-Term Debt10%

Shareholders’ Required Rate of Return 17%

Take Two Optimistic Free Cash Flow

2014 2015 2016 2017 2018

$177M $42M $150M $192M $422M

Terminal Value $2.6B

$3B

Critical Assumptions

2013 2014-2018

Sales Growth 49% 50%

Costs of Goods as % of Sales 59% 55%

R&D as a % of Sales 6% 8%

Take Two is Fairly Valued

Estimated Value per share $20

Current Market Price as of 4/24/2014 $22

Current Market Capitalization $1.7B

Shares Outstanding 86M

Premium 20% $24

Purchase Price $2.1B

Take Two will not be acquired

● Uncertainty to Take Two’s very optimistic free cash flows

● EA cannot afford Take Two at this time● EA focusing on online and mobile sector

Zynga, Inc.

● Develops,operates, and distributes online social games.○ Farmville○ Chefville

● Possible acquisition because it is in the online and mobile market.

Zynga New Social Game App Will Create $18 M

● Launch new social game app○ Initial cost: $5.5M○ Net present value: $18 M○ Payback period: < 1 year

Critical Assumptions Forecasted 2015

New active users 11M

% of users that make in-app purchase

35%

Zynga Positive Past Operating Cash Flows

2010 2011 2012 2013

$326M $389M $196M $29M

Zynga Cost of Capital

Weighted Average Cost of Capital 17%

Cost of New Long-Term Debt 5%

Weight of Long-Term Debt20%

Shareholders’ Required Rate of Return 20%

Zynga Positive Free Cash Flows

2014 2015 2016 2017 2018

$82M $45M $121M $243M $405M

Terminal Value $4B

$4.4B

Critical Assumptions

2013 2014-2018

Sales Growth 12% 25%

Expenses as % of Sales 28% 21%

R&D as a % of Sales 47% 42%

Zynga is Overvalued

Estimated Value per share $2.28

Current Market Price as of 4/24/2014 $4.35

Current Market Capitalization $3.7B

Shares Outstanding 832M

Premium 20% $5.22

Purchase Price $4B

Zynga Could Merge With EA

Why?● EA does not have enough money to

acquire Zynga● Zynga is overvalued

Benefits:● Increase market cap and company value● Align to EA’s business model● Only implementation cost

No Acquisitions Will Be Made at This Time

Company Recommendation

Akamai Will not acquire because it is too expensive.

Ubisoft Future potential target for international business.

Take TwoWill not acquire. Firm not in mobile industry or international.

ZyngaWill not acquire because it is too expensive. Possible merger in the future.

Moving Forward

● Our recommendation is to acquire small privately held companies because they are more affordable and will be easier to integrate into Electronic Arts.

Merger Success

IT can be a powerful factor behind M&A success

2 key points that ensure back-end integration

● Have its own IT in the best shape before initiating any deals

● As companies begin merger talks, IT leaders should be involved as well

Principled Leadership

● Communicate regularly○ Integrated culture○ Create positive business momentum and

discipline

● Get staff involved○ Create trust and purpose in the community○ Allows employees to remain focused and

engaged on the job

No Acquisitions Will Be Made at This Time

Company Recommendation

Akamai Will not acquire because it is too expensive.

Ubisoft Future potential target for international business.

Take TwoWill not acquire. Firm not in mobile industry or international.

ZyngaWill not acquire because it is too expensive. Possible merger in the future.