New York/London | Electronic Arts has for years been coveted by Saudi Arabia’s sovereign wealth fund and the billionaire dealmaker Egon Durban. But it was Donald Trump’s son-in-law Jared Kushner who unlocked its $US55 billion ($83 billion) takeover.
Kushner, who is married to Trump’s eldest daughter Ivanka, began sketching out the largest buyout in Wall Street history earlier this year with Durban, who co-heads tech-focused private equity group Silver Lake.
Master of the deal. Jared Kushner with wife Ivanka Trump. AP
They approached EA, codenamed “Eagle” by the dealmakers, with a firm bid about a month ago. Facing a powerful group of bidders with influence stretching from Riyadh to Washington, EA’s board dug in to extract the highest possible price.
Monday’s takeover of EA further cements a financial axis between the US president’s orbit and Washington’s most powerful ally in the Arab world.
The $US55 billion buyout – backed by $US36 billion in equity and $US20 billion in JPMorgan debt – has thrust Kushner into the Wall Street spotlight. He acted as a key figure in constructing the audacious buyout.
Kushner’s investment firm will end up owning about 5 per cent of EA, said people briefed about the matter. Saudi Arabia’s Public Investment Fund (PIF) will become the majority owner of the video game maker as it has signed the largest equity cheque, followed by Silver Lake, which will be a large minority shareholder, these people added.
Durban had been studying a takeover of EA for more than a decade. But it was Kushner who convinced PIF to go for the take-private bid, said people briefed on the matter.
Saudi Arabia’s Public Investment Fund will become the majority owner of Electronic Arts as it has signed the largest equity cheque. Bloomberg
Kushner leveraged deep ties he built in Saudi Arabia as a top envoy during Trump’s first presidency. EA’s management also took several trips to the kingdom as the transaction progressed. Turqi Alnowaiser, PIF’s deputy governor, led the negotiations for the fund.
The deal is a bold wager by Silver Lake, Kushner’s Affinity Partners, Saudi Arabia’s wealth fund and America’s largest bank. They are betting artificial intelligence will fuel an entertainment boom and yield major corporate cost savings by reducing production expenses for games.
Ultimately, the takeover won the support of the kingdom’s crown prince
Mohammed bin Salman and JPMorgan’s Jamie Dimon, America’s leading banker. Insiders expect it will be backed by the US president, as he treats Riyadh as an important US ally.
“Kushner has a personal relationship and he has deep ties in Saudi Arabia. He is very comfortable operating in the Middle East. It created a basis of trust,” said a person briefed on the talks.
Over the past decade, the crown prince has poured billions into tech and related investments as part of his drive to diversify the nation’s economy away from oil. He earmarked $US38 billion for investments via PIF’s Savvy Games unit in video game companies, one of his favourite hobbies.
Saudi cultural change
PIF also holds stakes in other companies in the sector such as Nintendo and Take-Two Interactive.
The takeover of EA, in which PIF already invested billions of dollars, underscores this effort financially and culturally, in a kingdom that until recent years banned cinemas and concerts but is now seeking to position itself as a global hub for entertainment and innovation.
Silver Lake’s Durban had studied a takeover of EA in 2011, but a deal never materialised. He was eager to work with Kushner, whose fund Affinity Partners is backed by PIF, believing the company was misunderstood by public markets.
EA’s video game titles such as EA Sports FC and Madden NFL will add to Silver Lake’s large bets on sporting assets, such as the parent company of Ultimate Fighting Championship. The firm believes AI will lead to an explosion of leisure time, fuelling growing spending on sports and entertainment.
“These are two of the biggest investors in sport who also now own the largest gaming-focused sports business,” said a top adviser involved in the talks.
The consortium plans to invest additional money into EA or borrow more money to fund acquisitions, said the people. The buyers could also fund large acquisitions of other gaming companies using EA’s private shares, they added. If the deal falls apart, the consortium owes EA a $US1 billion break fee.
The initial pivotal moment in the months-long takeover negotiation occurred around Labour Day when the first real bid landed, said people briefed about the matter.
“Although the first offer was below the company’s expectations, it was close enough to provide line of sight on a deal,” said a person briefed about the matter.
EA shares have stagnated on public markets for half a decade. So its board decide to move ahead and extract as much as possible from the buyers.
The company enlisted Goldman Sachs and elite law firm Wachtell Lipton to negotiate the financial terms, an effort code-named Project Oak.
Their task was to hold the line against Silver Lake, known on Wall Street as a tough negotiator often unwilling to cave on price.
Swift answer
The consortium readied its knockout bid in mid-September. They wanted a single bank to arrange the full financing, choosing JPMorgan.
Durban made the call. JPMorgan CEO Dimon had supported Silver Lake and Michael Dell’s efforts to acquire technology group EMC Corporation a decade ago with a $US50 billion debt package that eventually yielded one of Wall Street’s largest windfalls.
On September 17, Durban dialled Dimon’s office. His secretary said the boss was out of office in Washington – where CEOs now regularly spend greater amounts of time.
Minutes later, Dimon called back. The answer was swift. JPMorgan would stand behind a $US20 billion financing package, one of the largest to a company that would be rated below investment grade. Dimon instructed his capital markets bankers to get it delivered in less than a week.
”Once JPMorgan was there, we knew the deal had real momentum,” said one person involved in the process, though the final price still had to be settled. “By the last week of talks, they were confident the transaction would close.”
The buyer group will pay $US210 a share, a 25 per cent premium to EA’s share price on the day before the deal when public. They will retain EA CEO Andrew Wilson, who Durban credited on Monday with substantially growing its profits.
While a deal of this kind could face regulatory scrutiny in Washington, several people said they expected the transaction to go through fairly easily, citing the influence of Kushner and Saudi Arabia on the White House.
“We are in a regulatory environment that is welcoming of [Saudi Arabia]. We are not in what was the previous regime,” said a person briefed on the transaction. They said Kushner’s participation in the consortium could prove valuable if the deal were to unexpectedly hit a snag.
Or, as another person close to the inner workings of the Trump administration put it: “What regulator is going to say no to the president’s son-in-law?”
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