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EA Gains on Nexon Takeover Rumors

Stocks in this article: ERTS

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Video gaming publisher Electronic Arts' (EA) stocks gained 6% last Thursday amid the rumors that Nexon, a South Korean developer and publisher of free-to-play games currently headquartered in Tokyo, has offered to buyout EA.

While both companies have refrained from any official statements on the rumor, here we try to look at why Nexon, might be interested in acquiring Electronic Arts. EA competes with other game developers like Activision Blizzard (ATVI), Take-Two Interactive Software (TTWO) and casual gaming mainstays such as Zynga (ZNGA).

See our full analysis of Electronic Arts

Why Nexon Might Be Interested in EA

Before analyzing the interest of Nexon in EA, it's important to understand the nature of businesses of these gaming companies. Though not well known in the U.S., Nexon is a pioneer of free-to-play MMO games in Asia. Among all of its games, the company is most well known for Maple Story, a very successful free-to-play MMO in Asia.

In a highly publicized event last year, Nexon managed to raise $1.2 billion in its IPO on the Japanese stock market. The company is aiming to grow aggressively in the near term and was recently in the news for its statement that it's looking to buy some smartphone and mobile-game developers.

On the other hand, EA has also been gradually cementing its business in the social gaming genre. While the company's Sims Social is already a highly popular game, EA acquired social MMO developer KlickNation in December 2011, to strengthen its hold in social gaming.

See: EA Acquires KlickNation to Strengthen Hold in Social Games

One of the reasons Nexon might be interested in EA could be the reach of the latter in the North American social gaming market. Additionally, Nexon, which until now is only limited to MMO gaming, can also diversify into other gaming genres with the help of EA. Not to forget EA's growing prowess in the MMO space with the recently released Star Wars: The Old Republic (SWTOR) and Mass Effect 3, which may also be luring the South Korean developer.

Trefis' EA price estimate stands at $20.62, which is near its current market price.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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