Virgin’s Game Design Groups to Be Sold for $122.5 Million
Electronic Arts Inc., the world’s largest computer-game maker, said Monday that it will acquire Virgin Interactive Entertainment Ltd.’s software development groups in Irvine and Las Vegas for $122.5 million in cash.
The deal with Los Angeles-based Spelling Entertainment Group Inc., which owns about 91% of Virgin Interactive, casts a shadow over the fate of Virgin’s remaining operations.
Spelling, which announced in 1997 that it planned to sell the troubled game company, has been in talks with Electronic Arts for nearly a year, sources said.
But San Mateo-based Electronic Arts was interested in only parts of the Virgin package: Westwood Studios Inc., the Nevada-based subsidiary known for its successful “Command and Conquer” series, and Virgin’s development team of 40 employees in Irvine.
Spelling officials would not comment on what will happen to the remainder of Virgin Interactive, which includes about 70 sales and marketing employees in Irvine as well as its European distribution offices.
“This is a great deal for Electronic Arts and Westwood, but you’ve got to wonder who’s going to want to buy the rest of Virgin,” said James Lin, an analyst with Wedbush Morgan Securities. “After all, the jewel’s gone.”
Westwood and its staff of 125 will remain in Las Vegas and continue work on a variety of new titles, including “SuperBikes,” a motorcycle-racing video game that was previewed at a recent industry show. Also, Virgin’s team of about 40 game developers in Irvine is expected to remain in Orange County, officials said.
Spelling and Viacom Inc., which owns 80% of Spelling, will sell all of their stock in Westwood Studios to cut debt and focus on the television business.
“This was the best deal to maximize the value of Virgin,” said Nancy Bushkin, a spokeswoman for Spelling Entertainment.
The deal, pending regulatory approval, is set to close next month.
Electronic Arts told analysts during a conference call that it expects a restructuring charge of $35 million to $45 million when the deal is closed, to cover in-process research and development and the write-down of goodwill.
“We have the leading distribution operation in North America and Europe. We didn’t need more sales staff,” said Pat Becker, spokeswoman for Electronic Arts in San Mateo. “We’ve been looking longingly at Westwood Studios for quite a while, but Spelling and Viacom weren’t willing to sell off the different assets separately.”
Analysts said that Spelling, dealing with its own financial troubles, finally realized that it needed to cut its losses.
Virgin lost $49.5 million for the nine months ended Sept. 30, according to a December filing made with the Securities and Exchange Commission.
Spelling has said it would take a total of $295 million in charges to divest the troubled Virgin operations, according to more recent SEC filings.
Spelling has been purging itself of several investments over the last year. It sold its Latin American channel, TeleUNO, and closed its feature film and video-rental distribution operations.
A combination of high production costs and a glut of games has made developing games an expensive proposition.
It costs nearly $1.5 million to develop a game--not including marketing fees--compared with $500,000 just three years ago. Despite such rising costs, the industry continues to swamp consumers with a flood of new game titles.
That makes it tough for all but the largest companies to compete in the game market, and the industry has been going through a consolidation.
Electronic Arts has been on a two-year buying spree, picking up several smaller development firms. Rival game maker CUC International in Seattle also has been fattening up its already powerful stable of talent.
Struggling to compete, Virgin has been scaling back its staff over the last couple of years and cutting down the number of games it develops internally. In 1996, Virgin had nearly 450 people working out of its Orange County facility.
Reuters contributed to this report.
