Electronic Arts borrows $550M in convertible loans to finance PopCap deal

Electronic Arts said today it has priced $550 million in convertible debt in a private placement. That means it is borrowing money in order to finance part of its purchase of PopCap games, which will cost $750 million at a minimum and as much of $1.3 billion over time.

EA has the cash for this deal, but it isn’t using it. That could mean EA’s buying spree isn’t over, since the debt will give EA more financial flexibility to use its cash on other acquisitions.

EA itself said the debt relates to EA’s purchase of PopCap Games for up to $1.3 billion earlier this week. EA has plenty of cash, but the fact that it is turning to debt suggests that it doesn’t want to use that cash to pay for PopCap and would rather borrow that money. That suggests EA may still have a need for cash above and beyond buying PopCap.

The convertible debt is for 0.75 percent convertible senior notes that are due 2016. The placement is expected to close on Wednesday, July 20. The notes will be convertible into cash and shares of EA’s common stock at a conversion rate of 31.5075 shares of common stock per $1,000 principal amount. That is about $31.74 a share in common stock. EA has also granted the initial purchasers in the private debt offering an option to purchase up to $82.5 million in notes to cover overallotments.

EA says the net proceeds of the deal will be $536.6 million. EA said the various deals could result in a change in the company’s stock price as investors react to the news.

The financial transaction has been undertaken to complete the cash part of the acquisition of PopCap. But EA already has about $2 billion in cash, so it is doing this deal presumably to maximize its financial flexibility. EA said it would pay a minimum of $650 million in cash and $100 million in stock for PopCap, the Seattle-based maker of casual games.

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