Monday, March 24, 2008

EA CFO Resigns

Announced this morning (thanks Gamasutra):
Publisher Electronic Arts has announced that the company's chief financial officer Warren Jenson will be leaving the company amidst its ongoing bid for rival publisher Take Two.

Jenson, who has served as CFO since 2002, gave no explicit reason for leaving the company, but said in a statement that the time had come "to write the next chapter in my career."

So a CFO resigns with no warning in the middle of a major and possibly controversial acquisition?

If anyone would want to put distance between themselves and an acquisition of Take-Two, it would be a CFO. Take-Two's spotty (a charitable term) accounting history and long-term history of problems with the SEC would give anyone in a financial role serious concerns.

Here's a quiz. See if you can identify these numbers: 3.091, 2.951, 3.129, 2.957.

In billions of dollars, that's EA's revenue for the last four fiscal years. Which one is which? It doesn't matter--they're all almost the same. In other words, EA isn't growing anymore.

Here are four more numbers: 76, 236, 504, 577. That's EA's total net income for the last four years, and this time, the order does matter, because total net income has decreased each of the last four years (most recent year was listed first, then continued in order).

So EA isn't growing, and their profits have declined by over 85%.

Hoping to spur growth and improve profits, they're trying to acquire Take-Two. Look at Take-Two's operating revenue for the last four years (in order, with most recent listed first):
981.79, 1,037.84, 1,201.22, 1,127.75.

That's in millions, so they've gone from 1.127 billion to 981 million over the last four fiscal years. They're not only not growing, they're contracting.

Now look at total net income (again, in order, with most recent year listed first):
-138.41,-184.89, 35.31, 62.12.

Ouch.

So EA, which is stagnant in a growth sense and tepid in a profit sense, is buying a company that is actually contracting and has a net loss of over 300 million dollars in the last two years. Oh, and this company has had serious accounting issues in the past (which may be ongoing).

If I was CFO, I would have resigned, too.

Does this mean it's a bad deal for EA? No, but I think it gives you a gigantic clue to what EA would do to Take-Two once they acquired the company. In short, they'd immediately gut anything that wasn't contributing a significant amount of profit or prestige. They would keep Rockstar, Irrational (Ken Levine), and Firaxis (Sid Meier).

I'm sure I'm forgetting someone, but I'm not sure what else would be seen as contributing franchises from EA's perspective.

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