Brains! Why EA May Spend $1.3 Billion on PopCap

After weeks of speculation, Electronic Arts has confirmed that it has agreed to acquire PopCap Games for $750 million in cash and stock.

TechCrunch had originally reported that the two companies were in talks, but the acquisition seemed unlikely given that Electronic Arts had told the public markets that it was through making big acquisitions, especially after buying Playfish.

EA will purchase PopCap, which is known for such casual games as Bejeweled and Plants vs. Zombies, for $650 million plus $100 million in stock and a multi-year earn-out.

PopCap had previously said it was eyeing an IPO in the October timeframe.

In a release, EA’s CEO John Riccitiello said, “EA and PopCap are a compelling combination. PopCap’s great studio talent and powerful IP add to EA’s momentum and accelerate our drive towards a $1 billion digital business. EA’s global studio and publishing network will help PopCap rapidly expand their business to more digital devices, more countries, and more channels.”

In addition to the cash and stock payments, PopCap will have the chance to earn up to $550 million in additional cash if it hits the high end of its financial expectations, bringing the total transaction to $1.3 billion. Separately, EA will also provide up to $50 million in retention awards to PopCap employees to be granted over the next four years.

[Update: Read more about why Zynga’s $1 billion cash offer wasn’t enough to win the deal.]

Here’s the full release: