EA to be bought by Nexon? Why the deal "cannot happen" according to Pachter

EA shares, as noted by Forbes, have been spiking today on a rumor making the rounds that free-to-play giant Nexon has made a bid to purchase the publisher behind Madden, FIFA and Mass Effect. It's an interesting bit of gossip to be sure, but there are plenty of reasons why this one's probably a lot of hot air.

Wedbush Securities analyst Michael Pachter sent us the following assessment on why a Nexon-EA deal would be very unlikely:

Nexon's market cap is around $8 billion, and their CEO owns over 50% of the stock. Float is around $1.5 billion. If they did a stock-for-stock deal for EA at $20 (very unlikely that this would be the price), they would have to issue shares bringing their market cap to $14 billion (assuming they hold their price, also very unlikely), and the CEO's stake would drop to around 30% of the combined entity.

Reasons this won't happen:

1) The CEO will not give up control

2) EA shareholders won't take Nexon shares, because they would likely drop a ton when the float goes from $1.5 billion to $8 billion

3) EA management would recommend against an offer below $25 (where stock traded in October in a weaker market) and likely would reject an offer below $30

4) Nexon would be the acquirer, and would attempt to run a company with $6 billion in revenues that is in mobile, social, MMO and packaged goods, all things Nexon has never done before, at a size 4x their current size

5) EA management would NOT be in control, so the potential for a loss of key employees is huge

6) There are few, if any synergies, and no reason to believe that Nexon could run EA's assets more efficiently. Nexon shareholders would own a completely different company than what they bought in the December IPO

My takeaway is that this deal cannot happen. Nexon couldn't pull off a stock-for-stock deal for the reasons above, and would have difficulty financing an all-cash deal to make EA shareholders happy. If it did, it would have around 50% of its market cap in debt, and there would be a tremendous amount of skepticism about whether Nexon could manage EA's assets any better than EA management currently does.

Silly rumor. Day traders should take advantage, longer term investors should stay put, those uninvolved should wait until the furor dies down. I still love EA stock, but expect this to be denied by its management by the end of the day.