The largest leveraged buyout in history?

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This week, we have seen what may be the largest leveraged buyout in history.

The video games maker Electronic Arts has been purchased for 55 billion American dollars.

Today on the show,

is this deal a sign of the top or a new dawn for Wall Street?

This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin.

I am Rob Armstrong coming to you from an autumnal New York City, joined by the two greatest reporters in the history of finance.

It's a show of superlatives.

James Fontanella Khan is our U.S.

Finance Editor here at the FT.

Welcome, James.

Thanks for having me, Rob.

Oliver Bad News Barnes is our U.S.

deal correspondent.

U.S.

deals.

There's more than deals.

And it's not all bad news.

It's not all bad news.

It's good news for the EHL.

Right on.

Okay, Oliver, on that very point, walk us through the structure of this ginagorous deal.

Yes.

So on Monday morning, a consortium made up of PIF, the Saudi Arabian Sovereign Wealth Fund, Silver Lake, the technology-focused private equity group, and a guy you might have heard of, Jared Kushner, President Trump's son-in-law.

Right.

Wrote a $55 billion check to buy electronic arts, to take it off the public markets.

That's what leveraged buyout means.

Helped by J.P.

Morgan and Jamie Dimon, who stumped up $20 billion worth of debt.

Yes.

Take us through the players.

What is the significance of this cast of characters?

Let's start from Jared Kushner, the son-in-law of President Trump, married to Ivank Trump.

And he's kind of the Sherpa.

He's getting all the parties together.

So we met.

We wrote a beautiful TikTok explaining how the deal got put together.

And essentially, it started about early in the year.

Jared Kushner, who he's not doing this out of his own pocket.

He set up, after the Trump One administration ended, set up an investment vehicle called Affinity,

which had a mandate to invest in kind of fast-growing, tech-focused companies.

And he got the funding for that venture from Saudi Arabia.

Saudi Arabia, okay.

And we'll get back.

This is a complicated deal, as a lot of buyouts are, so we're going to take our time to explain this clearly.

Kushner, as it were, shepherding the thing through.

So he met with one of the co-heads of Silverlake, who's Egan Durbin.

Silverlake had been looking at EA for a long time.

They also have a reputation for being some of the smartest guys when it comes to gigantic complex biots especially.

Absolutely.

They are the best known financial engineers.

Definitely on the West Coast.

They've partnered with Michael Dell

of the great PCs

maker.

And so

they're known for being the best in class to get anything of this kind of size done.

Kushner, who's not a tech guy, he's obviously made most of his money in the real estate business, predominantly in New York and Jersey, went to meet Egan.

He said, what do you think about this deal?

And

Egan said, I'm interested.

And obviously, the other key component, PIF, the sovereign wealth fund of Saudi Arabia, was already an investor in YA.

They had a 10% stake.

So at that point, Kushner, who had the relationship with Saudi, which is kind of one of the main contributors to his private equity fund, he went and knocked on the door of the Saudis and said, hey, MBS, my dear friend, how about we do a deal and we buy out this company and kind of transform it, make more money together, help you diversify your country away from...

oil and gas, which is one of the big things that Saudi Arabia's crown prince, MBS, has been trying to do.

So again, a lot of people involved.

But they managed to get the interests aligned.

One thing I was struck by, Oliver, is, you know, with every leveraged buyout, there's a discussion of the split in the deal between debt and equity.

How much debt money is being put into the $55 billion, how much equity money.

And there was a lot of equity money in this deal.

It seemed high to me.

I was struck by how high it was.

Kind of like a somewhat leveraged buyout.

Yes, a moderately leveraged buyout.

Moderately leveraged buyout.

Yeah, I think it's a consequence of you always hear about the private equity industry and the amount of dry powder that they have to put to work.

And if you go through the FT archives, Egon Durbin sat down with our esteemed colleague Antoine Gara a couple of years ago, saying exactly this, that Silverlake had the ambition to write big checks and place a few concentrated bets on companies.

And that's exactly what they've done.

And I think there's a trend unfolding where the balance of debt versus equity in these deals is tipping a bit more towards equity because they have a lot of dollars to put to work, right?

And that makes

Saudi Arabia involved.

They also have a lot of people.

And it makes the deal safer, right?

I mean, you have more equity in there.

100%.

You don't have that interest expense looming over you every month or every year that the company has to pull along.

You know, it makes it a bit.

A lot can go wrong.

Yeah.

But

it's a short period of due diligence, though.

I mean, JP Morgan made a decision to put up the $20 billion

within a few days.

Yeah, we were making calls yesterday frantically to find out how this deal got put together and just so that our listeners can get a sense of the timing essentially the first bid after they met early in the year

silver lake and cushioned the Saudis and Kushner they then made a bid in September around Labor Day that bid was rejected by EA's board but they kept it quiet and then a new bid arrived about fourteen days ago ten days ago, which was much higher.

And then they had to figure out the financing, the debt portion.

And

Kushner, the Saudis, and Egan Durbin of Silver Lake decided we want to make one call to one bank for one check.

And who do you call when you need a big check?

The Sun King.

Absolutely.

The banker of America, Jamie Diamond.

And him being able to put up 20 billion or being willing to put up 20 billion, it's a little bit like having Warren Buffett money.

It's a little bit like the Pope putting

a blessing on the deal.

So that gives it a positive angle.

As Oliver says, not a lot of due diligence.

It was done in seven days.

So let's do a little due diligence ourselves.

What kind of shape is EA in?

Is this a strong business?

It certainly struggled a bit on the public markets.

Like its share prices declined over the past few years.

EA has like a rich stable of content.

And I'm sure you're eagerly anticipating the launch of the new Battlefield series.

I know.

Or maybe your kids are.

But, you know, EA lives or dies by that content.

And it does have a rich stable of content.

It has the Madden game.

It has the Madden NFL games.

It has EA Sports FC, which is the rebranded FIFA and The Sims, a whole bunch of stuff.

So, yeah, there's the potentials there.

And also, it does spit off quite a lot of cash.

And I think...

$2 billion a year in the last couple of years.

Private equity loves that.

Yeah, yeah.

So $2 billion a year comes squirting out of this thing, which can support quite a lot of debt.

I'm not sure the whole debt package, though.

It's quite a large one.

Yeah.

And they clearly have ambitions for it.

I mean, the sense that we got from the buyers is that they're now going to go and do other deals off the back of this, right?

It's a platform, as they say in the

private equity.

So they're going to attach other games companies to it or whatever.

The name of the game is Scale.

And the other name of the game is AI.

I wanted to talk about it.

Let's get into it right now.

This was something that came up a lot in your stories, that there is an idea here that this is an industry or a company that AI is going to transform.

Do you buy that idea, gentlemen?

It makes sense, right?

I mean, I'm not a video games developer, right?

Right.

But, you know, if you move from a model where you have to have a human being intricately designing every player on VA Sports FC, and instead you can just put it through some AI and render those players

so it can cut out a lot of the cost space, right?

It's a margin expansion story in some way.

Exactly.

And I'm sure that's something that the consortium is thinking about, particularly Silverlake, because I don't think they'd want to lose money on this.

I do think we should step back from this.

And I don't think this is your standard LBO.

I mean, everyone talked about...

TXU, right?

Which this eclipsed in terms of value.

Yeah, which was a disaster, by the way.

As an old guy, this was the first thing I thought of.

I saw a $50 billion IPO.

It's the top of the market.

Oh, my God, it's TXU2, which was a big energy company leveraged buyout in 2007.

I was 12 at the time.

Yeah, Oliver was 12.

I was a young man of 70 when the deal came.

I was in my second year at the FT.

But I don't think this can be understood as like your conventional Commonwealth Garden LBO, right?

Because I think that's fair.

The Saudis in pushing to diversify away from oil and gas have been aggressive buyers in the luxury hospitality space, in entertainment, in tech.

They've even bought a bunch of other gaming companies and they own share public equities and then a bunch of other gaming companies.

And

I don't think Piff is thinking

five-year vintage will flip this.

That's not the equation there.

Let me ask you this, James.

In their history trying to diversify their wealth, have the Saudis been the smart money or the dumb money or somewhere in between?

It's a tough one to answer straight.

I mean, certainly there's a perception that it is dumb money, and I think the Saudis are very aware that they're perceived this way, and they don't like it at all.

Who would?

They

feel that they have been taken for granted in many instances.

And so

having picked as a partner

Jared Kushner and Silverlake,

what they're trying to do here is to kind of get some protection and not to be treated as dummies.

I don't think they've got the arrogance to say we're the smartest guys in the room.

They are trying to diversify.

So that's a process and they're looking for partners.

In this case, somebody like Jared is kind of an important geopolitical partner.

He's been involved in peace negotiations in the Middle East, as you know.

He's got a personal relationship with MBS.

So that gives them cover that they will not be taken for a ride on the politics side side of things.

And on the financials, they think Egan Durbin is known, again, as I mentioned earlier, like as one of, if not the smartest guy when it comes to complicated, layered deals.

And he's always made money

or mostly made money.

And so they think we want to be with the guy that if he's making money for himself, he's going to make money for us.

Obviously, it doesn't always go that way.

Yeah, yeah, you have to make sure you're on parallel footing.

Exactly.

Let's focus focus in on Kushner for a second.

I mean, one thing that's very clear, and this came up in the FT,

is that it doesn't hurt when you're trying to do a huge deal in which mostly foreign money is buying a huge American company to have the president's son-in-law on board.

And

to put it with maximum crudeness,

is it quite all right to have the president's son-in-law cash in on that status as someone as like a matchmaker in the world of money and as it were

selling the Trump imprimatur.

Is that the word?

The stamp of approval.

The stamp of approval.

Is this all quite right?

Well, I suppose this is the new world we live in, right, isn't it?

I mean, if you look when Kushner fostered those relationships with Saudi, it was during the first Trump administration.

And clearly that's a big part of his value to this deal.

But he wasn't just like brought in as a foil, you know, for this deal.

He conceptualized it in some way with Silverlake.

And then they said, you go to Piff and bring them in.

But no, for sure.

I mean, one of the themes in kind of covering deals at the moment is

an adjacency or ability to barter with the current administration.

And, you know, it's easier for them to sell this deal if Jared Kushner's involved than not.

And it's a big buyout of a US company by a consortium involving a foreign buyer.

So it will be looked at by CFIAS, the Committee on Foreign Investment in the United States.

And it's not like a big infrastructure deal or something like that.

So it's probably unlikely to really flash red warning signs for CFIS.

But you would imagine Kushner's involvement might ease the path a little bit.

Aaron Powell, if I can interject on that, and I agree with everything Ollie has just said, under previous administrations, there's no doubt that a deal of this kind would have gone through meticulous scrutiny by the body that Ollie mentioned, Cyprius, which is essentially looks at all the foreign investment that is done in the U.S.

from a national security perspective.

This is a video game company.

It's increasingly, it's got a data component inevitably.

Yes.

And so

you want to make sure that this foreign buyer is not misusing the data of US citizens.

And it's important to underscore that Saudi Arabia is an important, if not the most important, ally of the United States in the Arab world.

So it's not a hostile country.

It would be a very different deal if

a Chinese company was trying to buy EA.

So we need to make that distinction.

But we should also bear in mind that Saudi Aramco

could not list in the US because there were a lot of questions about the Saudi government's involvement in 9-11.

That's why the personal relationship with Jared Kushner is so vital to this deal.

I mean, you guys are reporters.

I'm an opinion writer, so I can say this.

This version of capitalism, where adjacency to the presidential administration is

a crucial or at any rate a very beneficial component of any large deal.

This makes me acutely, as a capitalist, this makes me acutely jumpy.

I don't like this version of capitalism, but perhaps it was always like this, that you always needed political relationships to do deals of this nature and this size.

And it's just more visible now under the Trump administration.

Do you think that's possible?

I don't know.

I think it's fair.

Yeah, yeah.

With everything that Trump does, there's a kind of a crudeness to it.

But yeah, I think he would agree with that.

This is how business has always been done.

I'm just being more transparent and honest about it.

There is no deal of late of significance that doesn't have a Trump angle.

I mean, we can from Intel, US Steel, the railroad merchant, the railroad.

I mean, it's just, but it's also true that the previous administration of Joe Biden blocked a lot of deals.

Like, think about the role that Lena Khan, who was the antitrust regulator at the FTC, played in shaping, using deal making as a way to push certain kinds of industrial policy or social policy or justice, social justice, and correcting other wrongs in society.

So, we shouldn't pretend that Trump is an anomaly.

I mean, politics has always played a role in business.

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Welcome back.

This is Long and Short, which is the portion of the show where we go long things we like and short things we don't like.

Oliver, are you long or short something today?

Long something.

Right on.

Make us rich.

What do you got?

I am long, the Trump-inspired M ⁇ A boom.

Woo!

There's going to be deals.

There's more to come.

Yeah, there was some uncertainty.

There were some jitters early on Ally Liberation Day.

But what we see right now is there's a world in which a lot of companies are seeing the opportunity to do big deals.

And I think that's a trend that is going to continue.

James, are you long or short something?

Big short.

All right.

Hit me.

I'm taking the short on Ollie's long.

I love that.

Oh, God.

And I have to say that.

So it's not going to happen.

Why is it not going to happen?

I've been bearish on this kind of return of animal spirits.

And I agree, we're starting to see people thinking unthinkable.

But there's one thing that is never good for dealmaking, and

that's uncertainty.

And Trump is the emperor, the king of uncertainty.

And something will go wrong.

We'll have a massive freak out and

M ⁇ A will go into another.

Ollie and I will be taking long holidays and stuff.

All right, well, today I am long old people smoking pot.

I don't know if you guys noticed this this week.

That you're high.

I've been talking about the whole episode.

Well, I'm not talking about myself, but thank you for thinking me, Oliver.

I'm talking about the fact that cannabis companies got a huge boost when the president, about who we've been speaking so much today, posted a video from a consortium that supports the idea of using cannabis as a healthcare alternative for old people.

And I just think, you know, once you get to a certain age, whatever works, man.

It's a nice full circle moment, too, because there's no better compliment to a video game than a split.

So I hear it.

Listeners, thank you for tuning into this conversation, whether you are stoned or not.

We will be back in your feeds on Thursday.

Until then, stay frosty out there.

Unhedged is produced by Jake Harper and edited by Bryant Erstad.

Our executive producer is Jacob Goldstein.

Topher Forges is the FT's acting co-head of audio.

Special thanks to Laura Clark, Alistair Mackey, Greta Cohn, and Natalie Sadler.

FT Premium subscribers can get the Unhedged newsletter for free.

A 30-day free trial is available to everyone else.

Just go to FT.com slash unhedged offer.

I'm Rob Armstrong.

Thanks for listening.