EA buys into Chinese World of Warcraft operator?

via gamespot

Source: Electronic Arts has reached a deal to purchase 19 percent of online game operator The9, which runs World of Warcraft in China, according to a Reuters report.



What we heard: While the Reuters story is a widely referenced source in online reports, it is itself a second-hand source, citing Shangai Securities News as the real origin of the news. According to Reuters, the foreign paper is reporting that EA has agreed to purchase a 19 percent stake in the company for about $200 million.

The news raises a red flag because The9 is the Chinese operator of Blizzard Entertainment and Vivendi Games' massively multiplayer online role-playing game World of Warcraft. Pacific Crest Securities analyst Evan Wilson sent investors a memo this morning telling them to treat the news as a rumor for now, even though he said it would be a positive for both companies and laid out some reasons why the deal could be legit.

Wilson noted that most licensing contracts like the one between Vivendi Games and The9 contain a clause preventing a competitor from taking control of a license, but that EA could get around that if the stake it purchased in The9 were small enough.

While EA could benefit from having its upcoming Warhammer MMO distributed in China by The9, Wilson said that could harm the Chinese company's relationship with Vivendi Games, something it would likely avoid if possible. Whatever EA's long-term plan for The9 might be, Wilson said it won't include a full acquisition, noting that Chinese law prevents foreign ownership of entertainment companies.

Analyst Michael Pachter sent out an investor note of his own, suggesting a pattern in EA's acquisition trends of late.

"Given EA's minority ownership of Ubisoft and The9, we remain skeptical that the company intends to make further acquisitions of public companies over the foreseeable future. We think that if the company were to choose to consolidate the industry, it would be fully occupied completing the acquisitions of either Ubisoft or The9, and do not believe that it is considering [mergers and acquisitions] activity with other public companies."

Neither the analysts nor Reuters were able to secure confirmation of the agreement. Not to question the veracity of Reuters or Shangai Securities News, but until one of the parties involved here steps forward and confirms the deal, it seems there's a chance the acquisition won't happen due to each company's tangled relationships with Vivendi Games.

The official story: "EA has not signed an agreement with The9. We do not comment on rumors about our investment strategies. EA recently announced a 19 percent equity agreement with Neowiz, a leading online-game publisher in Korea."--An EA representative.

Bogus or not bogus?: Bogus until the deal is done.