Saudi Arabia's government investment fund is close to taking nearly all ownership of Electronic Arts, an announcement shows, representing another huge financial bet at a time when the Middle Eastern country's coffers are already stretched thin.
Saudi Arabia’s Public Investment Fund has partnered with technology-focused buyout firm Silver Lake and Jared. Jared Kushner's investment firm Affinity Partners teamed up to acquire the game developer for $55 billion (including debt). The deal, announced in September, is expected to be the largest leveraged buyout ever.
The consortium did not disclose the planned ownership structure. But an announcement submitted to Brazil's antitrust regulator in November showed that PIF would hold 93.4% of EA's shares, while Silver Lake and Affinity would hold 5.5% and 1.1% respectively. This means the burden of funding the deal falls almost entirely on the PIF.
The consortium will finance the deal with $36.4 billion in equity and borrow $20 billion in debt. PIF will roll over its existing holdings in Electronic Arts, which are worth about $5.2 billion at the purchase price, meaning PIF will have to come up with about $29 billion in new cash to reflect its eventual ownership stake.
PIF is also an important investor in funds under Silver Lake and Affinity. If there are problems after the transaction is completed, this will further increase the financial risks it faces.
Such a huge stake is unusual in a leveraged buyout deal, in which sovereign wealth funds typically serve as minority investors, riding the coattails of traditional private equity firms. Private equity firms typically have more expertise in closing deals and running newly acquired businesses.