⚖️ For Fairness Sake ⚖️ EA isn't a COD camper when it comes to M&A
A quick look at Glu Mobile's fairness opinion.
Glu Mobile acquired by Electronic Arts for $2.1 billion.
If you were ever like the Streamer above and EA’s Call of Duty was too hard for you and were like I could really use some easier mobile/social games to tide me over, well it looks like EA had a similar idea in acquiring Glu Mobile.
This is a more preliminary look since the PREM14A with the fairness was just filed and we are missing some data that may get filled in. I will likely update this post as we get more data.
Glu Mobile / Electronic Arts deal overview
February 8, 2021 - Electronic Arts (NASDAQ: EA), a global leader in interactive entertainment, and Glu Mobile (NASDAQ: GLUU), a leading global developer and publisher of mobile games including Design Home, Covet Fashion, and MLB Tap Sports Baseball, have entered into a definitive agreement under which Electronic Arts will acquire Glu Mobile.
Under the terms of the agreement, EA will acquire Glu for $2.1 billion in enterprise value. Glu stockholders will receive $12.50 in cash for each share of Glu stock, representing a 36% premium to Glu’s closing share price on February 5, 2021.
Electronic Arts has entered into a voting agreement with Tencent, holder of 21,000,000 shares of Glu (~12.1% of the voting power).
Termination fee of $78.9 million
Background of the merger
TL;DR: Glue IPO at $11.50 per share on March 21, 2007. In August 2020, BoD discussed conducting a process to solicit interest in an acquisition of Glu and reached out to several parties, including EA, to inform them. September 4, 2020, a recived an unsolicited offer from Company A at a 19% premium to Glu’s closing stock price on September 3, 2020. Ran a bake off for financial advisors and chose Goldman Sachs, Morgan Staley and UBS. Engaged in a strategic process and contacted eight other parties, seven of which met with senior management, and only three of whom made a proposal to acquire. Was not a lot of completive tension towards the end of the process, but Glu Mobile managed to increase EA’s offer from $12 to $12.50, Entered in exclusivity with EA on January 15, 2020 through announcement on February 8, 2021.
Offer timeline
The wringer
Glu Mobile filed PREM14A on March 12, 2021 that contained GS and MS’s fairness opinions. The initial submission is missing a good amount of key financial data need to recreate the analysis, we will see if Investors sue to get more disclosure.
Update: In response to litigation, a updated DEFA14A was filed on April 16, 2021 with some additional data.
Glu engaged Goldman Sachs and Morgan Stanley to act as its financial advisors. The engagement letters provide for a transaction fees of $15 million each, $2 million of which was payable upon the presentation to the Board of the results of the fairness opinions and the remainder of which is contingent upon completion of the Merger.
It is fair to GS and MS. This works out to ~0.76% for each GS and MS, of the $2.35 billion enterprise value, which on a combined basis would probably be at high end of M&A sell-side fee tables.
For its fee, GS goes with its standard valuation methods.
Implied Premia and Multiples
DCF
Transaction comparables
Present Value of Future Share Price Analysis
Premia Paid Analysis
For its fee, MS goes with the standard valuation methods and a couple others were noted as reference data.
Public Trading Comparables
Discounted Equity Value
DCF
Transaction comparables
Illustrative Precedent Premiums
Historical Trading Ranges
Equity Research Analysts’ Future Price Targets
A few caveats before we begin diving into the numbers. I am not going to be able tie out all the share price ranges due to several factors:
Financials projections are rounded to the ones
Quarterly projections not provided
A full option schedule was not provided in any filings
GS doesn’t provide the projected net cash or FDSO for the PV of Future stock price analysis
MS doesn’t provide terminal value assumptions for the DCF
MS doesn’t provide the projected net cash or FDSO for the Discounted Equity Value Analysis
Again, the old saying still applies, “you get what you pay for” and this is free. That said, we are in the ballpark for all analysis, so let’s dive in.
Valuation Summary
Is it Fair?
As my chiropractor used to say, only God and the Delaware Courts can decide that.
Management provides 3 plans, which can have an impact on your view of valuation depending on how much weight you give to each scenario
The Per Share Merger Consideration is greater than any stock price at which Glu’s shares have traded since July 23, 2007 (year of the IPO on NASDAQ)
The ~36.0% premium to the closing price of $9.19 per share on February 5, 2021 and an ~36.6% premium to the volume weighted average price of $9.14 per share for the 30-day period ending February 5, 2021 is relatively healthy
Even though EA claims to have stretched on valuation, upon closing, the acquisition will be immediately is expected to grow underlying profitability beginning in its first year
EA can probably achieve somewhere around $25 million of synergies
Not the most robust process, lead primarily by strategic who would have the ability to extract synergies
Seem unlikely another bidder will top EA’s offer
Let me know what you think about the quick read version in the comments below.
Management projected financials
Summary valuation
Discounted Cash Flow Analysis
Goldman Sachs
Using the Forecasts (reflecting the range of probability weightings of 1/3 to the Studio Plan and 2/3 to the Sensitivity Case at the low end of the range, and 2/3 to the Studio Plan and 1/3 to the Sensitivity Case at the high end).
Using discount rates from 7.5% to 9%, discounted to PV as of December 31, 2020
Unlevered free cash flows from 2021 to 2025, as reflected in each of the Sensitivity Case and the Studio Plan
A range of illustrative terminal values for Glu as of December 31, 2025, calculated by applying perpetuity growth rates ranging from 1% to 3% to the estimate of the terminal year unlevered free cash flow
Discounted to present value as of December 31, 2020, using the same discount rates, the benefits estimated by Glu’s management to be derived from its utilization of estimated net operating loss carryforwards
Added the net cash of Glu as of December 31, 2020
Divided by the FDSO of Glu calculated based on equity information provided by Glu’s management and the treasury stock method
Applying the range of probability weightings provided by the management of Glu to each of the Studio Plan and the Sensitivity Case
Derived ranges of present values per share of $9.40 to $14.60 (probability weighting of 1/3 to the Studio Plan and 2/3 to the Sensitivity Case) and $12.00 to $19.00 (probability weighting of 2/3 to the Studio Plan and 1/3 to the Sensitivity Case).
Morgan Stanley
Utilized estimates from the Studio Plan, Board Plan and Sensitivity Case for purposes of its discounted cash flow analysis.
Calculated the estimated unlevered free cash flow, which is defined as adjusted EBITDA less (1) stock-based compensation expense, (2) taxes (including the impact of net operating losses) and (3) capital expenditures and plus or minus changes in net working capital. Each of the Studio Plan, Board Plan and Sensitivity Case included (1) estimates prepared by Glu’s management through 2025, (2) the respective terminal values, which ranged from $2.588 billion to $4.745 billion in connection with the Studio Plan, $2.128 billion to $3.901 billion in connection with the Board Plan and $929 million to $1.703 billion in connection with the Sensitivity Cases, and (3) certain tax attributes.
The free cash flows and terminal values were discounted, using a mid-year convention, to present values as of January 31, 2021 at a discount rate ranging from 7.8 percent to 9.8 percent.
Based on the outstanding shares of Glu Common Stock on a fully-diluted basis as provided by Glu’s management and Glu’s cash and debt as of December 31, 2020.
Selected Companies Analysis (MS)
Glu Mobile lists the following companies in its 10K as competitors.
Companies selected that share similar business characteristics and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics. Analyzed the ratio of aggregate value, defined as fully-diluted market capitalization plus total debt, plus non-controlling interest, less cash and cash equivalents, to adjusted EBITDA, which defined as GAAP net income adjusted for change in deferral of revenue, change in deferred platform commissions, change in deferred royalties, and adding back amortization of intangibles, stock-based compensation, transitional costs, restructuring charge, depreciation and income tax provision, for calendar year 2021.
Utilized publicly available estimates of adjusted EBITDA prepared by equity research analysts, available as of February 5, 2021.
Based on the FDSO of Glu Common Stock as provided by Glu’s management and Glu’s cash and debt as of December 31, 2020.
Selected Transactions Analysis
GS and MS used the same Transaction comps and had the same multiples for each, but did use different ranges for the LTM EBITDA multiple.
Goldman Sachs
Analyzed certain publicly available information relating to certain acquisition transactions announced since 2015 involving target companies in the gaming industry with a transaction value greater than $750 million.
For each of the selected transactions, calculated the implied EV of the applicable target company based on the consideration paid in the applicable transaction, as a multiple of the target’s estimated EBITDA for the twelve-month period ended prior to announcement of each applicable transaction (referred to as “LTM EBITDA”).
Applied a range of enterprise value to LTM EBITDA multiples of 10x to 14x to Glu’s estimated EBITDA for 2020, as provided by Glu’s management
Added to this range of implied enterprise values Glu’s net cash as of December 31, 2020 as provided by Glu’s management
Divided the result by the implied total number of FDSO of Glu calculated using information provided by management and the treasury stock method
Derived a range of implied values per share of Glu Common Stock of $6.00 to $7.50.
Morgan Stanley
Compared publicly available statistics for gaming transactions since January 1, 2015. For such transactions, noted the multiple of aggregate value of the transaction to the last 12 months (which we refer to as “LTM”) estimated adjusted EBITDA based on publicly available information at the time of announcement of each such transaction.
Premia Paid
Goldman Sachs
Reviewed and analyzed, using publicly available data obtained from Thomson SDC, the premia paid in acquisitions of non-telecom, technology public targets in the United States with cash-only consideration announced during the period from January 1, 2015 through February 5, 2021 in which the target company had an implied enterprise value of $1 billion or greater.
For the entire period and for each calendar year through December 31, 2020 and for the period from January 1, 2021 through February 5, 2021, calculated median premia, and for the entire period also the top quartile, median and bottom quartile premia, of the price paid in acquisitions announced during such period relative to (i) the target company’s share price one trading day prior to the announcement or leak of the transactio and (ii) the target company’s highest closing share price over the 52-week period prior to the original announcement of the transaction.
Applied a reference range of illustrative premia of 15%-45% to the share price as of February 5, 2021, of $9.19 per share. This analysis resulted in a range of implied values per share of common stock of $10.60 to $13.30.
Morgan Stanley
Reviewed 119 select precedent transactions occurring between 2012 and January 20, 2021 which involved U.S. publicly listed companies in the technology sector and had a transaction value of greater than $1 billion and all-cash consideration. Noted the distributions of the following financial statistics, where available: (1) the implied premium to the acquired company’s closing share price on the last trading day prior to announcement; and (2) the implied premium to the acquired company’s 30-trading-day average closing share price prior to announcement.
Selected a representative range of premia and applied such range to each of Glu’s closing share price on February 5, 2021.
Implied Premia and Multiples (GS)
Present Value of Future Share Price Analysis (GS)
Derived a range of theoretical future enterprise values for Glu as of December 31 of each of 2021, 2022 and 2023, by applying a range of illustrative multiples of enterprise value to Adjusted EBITDA for the next twelve-month period, “NTM EBITDA,” of 13x to 17x to the estimated Adjusted EBITDA for the following full year reflected in each of the Sensitivity Case and the Studio Plan. Derived a range of theoretical future values per share of Glu’s common stock as of December 31 of each of 2021, 2022 and 2023 by adding the estimated net debt of Glu as of that date and dividing the result by the estimated fully-diluted Glu Common Stock outstanding as of that date, all as reflected in the Sensitivity Case and the Studio Plan, as applicable. Using an illustrative discount rate of 8.5%, reflecting an estimate of Glu’s cost of equity. Discounted to present value as of February 5, 2021, the range of theoretical future values per share of Glu’s common stock it derived as of December 31 of each of 2021, 2022 and 2023 under each of the Sensitivity Case and the Studio Plan.
Applying the range of probability weightings provided by the management of Glu to each of the Studio Plan and the Sensitivity Case, this analysis yielded a range of illustrative present values per share of Glu Common Stock of $10.20 to $14.90 (reflecting probability weighting of 1/3 to the Studio Plan and 2/3 to the Sensitivity Case) and $11.70 to $18.30 (reflecting probability weighting of 2/3 to the Studio Plan and 1/3 to the Sensitivity Case).
Discounted Equity Value Analysis (MS)
To calculate these discounted equity values, utilized calendar year 2023 adjusted EBITDA estimates under each of the Studio Plan, Board Plan and Sensitivity Case. Based upon the application of its professional judgment and experience, applied a forward range of aggregate value to adjusted EBITDA multiples (based on the range of aggregate value to adjusted EBITDA multiples for the comparable companies and the growth profile of Glu under each case) to these adjusted EBITDA estimates. Added projected net cash from such aggregate value to reach a future implied equity value, which was then divided by Glu’s projected FDSO (provided by Glu’s management) under the treasury stock method.
In each case, Morgan Stanley then discounted the resulting implied future equity value per share to January 31, 2021, at a discount rate of 8.8 percent, which rate was selected based on Glu’s estimated cost of equity. In doing so, Morgan Stanley utilized the following inputs: (1) a predicted beta of 1.28 per Alacra, (2) a risk-free rate of 1.2% based on the 10-year U.S. Treasury rate, and (3) a market rate premium of 6.0%.
Equity Research Analysts’ Future Price Targets (MS)
Noted certain future public market trading price targets for Glu prepared and published by equity research analysts prior to February 5, 2021. These targets reflected each analyst’s estimate of the future public market trading price of Glu Common Stock. The range of undiscounted analyst price targets for the Glu Common Stock was $10.00 to $14.25 per share as of various dates ranging from November 6, 2020 to January 28, 2021. Morgan Stanley discounted the range of analyst price targets per share for the Glu Common Stock by one year at a rate of 8.8 percent, to reflect Glu’s cost of equity. This analysis indicated an implied range of equity values for Glu Common Stock of $9.12 to $13.00 per share, as discounted by one year based on undiscounted analyst price targets, as of February 5, 2021.
Background of the merger
In addition, since completing an initial public offering of Glu’s shares on Nasdaq at a public offering price of $11.50 per share on March 21, 2007, the Board and senior management has regularly reviewed and evaluated various strategic alternatives, including acquisitions, dispositions, major commercial partnerships and other strategic transactions, as part of our ongoing efforts to strengthen our overall business and enhance stockholder value.
On July 29, 2020, The Board discussed the advisability of potentially collaborating with other participants in the mobile gaming and entertainment space. The Board discussed that this could potentially be a way to combine scale to address the business model challenges posed by the pending release of an Apple iOS update, which would eliminate the app-based Identifier for Advertisers (IDFA), and to mitigate the increased risks and uncertainties faced by Glu as a result of the planned launch of several new titles within the same timeframe. The Board also discussed strategies to acquire other mobile game companies to further this goal. The Board requested that Mr. Niccolo de Masi, the Chair of our Board, and Mr. Nicholas Earl, our Chief Executive Officer and a member of the Board, initiate a process to confidentially contact potential partners and explore their interest in a potential collaboration in light of the IDFA and scale issues. Further, the Board noted that these discussions with other parties may include consideration of potential strategic combinations, which may also be in the best interest of stockholders.
In August 2020, Messrs. de Masi and Earl had discussions with representatives of a number of industry participants, including Electronic Arts and parties referred to as Companies A through E, regarding the potential impact of the pending IDFA changes and other developments in the industry and potential collaboration opportunities to address the challenges and opportunities facing participants.
August 24, 2020, The Board then discussed potential opportunities for Glu to acquire other gaming companies and potential strategic collaborations, and discussed the desirability of conducting a process to solicit interest in an acquisition of Glu. Messrs. Earl and de Masi reviewed the discussions that had been conducted with other industry participants, including Electronic Arts and Companies A through E.
August 24, 2020, Mr. Earl contacted Andrew Wilson, Chief Executive Officer of Electronic Arts, and informed Mr. Wilson that the Board was considering a process to solicit interest in an acquisition of Glu, and on August 25, 2020, Blake Jorgensen, Chief Financial Officer of Electronic Arts, informed Mr. Earl that Electronic Arts was interested in exploring an acquisition of Glu. In these discussions, the parties did not discuss any potential terms or specific timeline.
On September 2, 2020, Mr. Earl contacted Mr. Jorgensen to indicate that the Board was interested in conducting discussions with Electronic Arts.
September 3, 2020, Mr. Earl spoke with a representative of Company E, and the representative of Company E noted that Company E could be interested in an acquisition of Glu but needed to discuss the potential transaction further with its board and wanted to postpone further discussions until after Company E’s quarter-end.
September 4, 2020, a representative of Company A submitted an unsolicited, written non-binding indication of interest to acquire Glu for $9.25 per share in cash, representing a 12% premium to Glu’s 30-day volume weighted average stock price and a 19% premium to Glu’s closing stock price on September 3, 2020 (the most recent trading day).
On September 4, 2020, The Board determined that it might be advisable to retain financial advisors and engage in a comprehensive review of strategic alternatives, including operating under our existing stand-alone plan, potential acquisitions by Glu, a potential sale of Glu, licensing strategy, publishing strategy and other potential strategic alternatives, and directed management to contact Goldman Sachs, Morgan Stanley, UBS and certain other investment banking firms for that purpose, based on their familiarity with Glu and the mobile game industry and their experience with transactions in our industry.
In early September 2020, Messrs. Earl and de Masi contacted representatives of several investment banking firms, including Goldman Sachs, Morgan Stanley and UBS, to invite them to present to the Board their qualifications and perspectives on Glu, its industry and market and a comprehensive review of strategic alternatives.
On September 10, 2020 and September 15, 2020, Mr. Earl and Mr. Jorgensen again spoke regarding Electronic Arts’ possible interest in an acquisition of Glu. While Mr. Jorgensen reiterated Electronic Arts’ interest in a potential transaction during these calls, the parties did not discuss any potential terms or timeline.
On September 14, 2020, the Board held a meeting at which members of our senior management and a representative of Fenwick & West were present. Representatives of Goldman Sachs, Morgan Stanley and UBS, as well as certain other investment banking firms, each successively joined the meeting and discussed their perspectives on the industry, market and Glu and the comprehensive review of strategic alternatives. After their respective presentations, each of the financial advisors left the meeting and the Board further discussed the comprehensive review of strategic alternatives and the retention of financial advisors.
On September 12, 2020 and September 18, 2020, Glu entered into confidentiality agreements with Company E and Company A, respectively. Each of these confidentiality agreements, and each confidentiality agreement that we entered into with other participants in our strategic process described below, including Electronic Arts, included a customary standstill provision that would expire upon the occurrence of specified events, including Glu’s entry into an agreement providing for an acquisition of Glu.
On September 15, 2020, Mr. de Masi introduced members of our senior management to representatives of Company B.
On September 18, 2020, Mr. Earl informed Company A that Glu was in the process of engaging financial advisors, that Glu would be in a better position to evaluate and respond to Company A’s indication of interest after Glu had retained financial advisors and that he would be in contact with Company A afterwards.
On October 2, 2020, the Board held a meeting at which members of our senior management, representatives of Fenwick & West and representatives of Goldman Sachs were present. At this meeting, the representatives of Goldman Sachs further presented to the Board on their perspectives on the industry, market and Glu and the comprehensive review of strategic alternatives, as well as their qualifications as a financial advisor in connection therewith. After the departure of the representatives of Goldman Sachs, the Board discussed the advisability of commencing a formal comprehensive review of strategic alternatives and determined that Glu should engage in such a review, including potential acquisitions by Glu, potential revisions to Glu’s stand-alone strategy, in each case with the goal of maximizing stockholder value and the potential engagement of financial advisors for those purposes.
During this meeting, the Board authorized the engagement of Goldman Sachs, Morgan Stanley and UBS to act as our financial advisors in connection with the comprehensive review of strategic alternatives, based on their experience in advising on transactions involving companies similar to Glu and their familiarity with Glu and its business and industry, subject to agreement on the fees to be paid to these firms and other engagement terms, for which the Board provided guidance to management, Mr. de Masi and Fenwick & West.
On October 7, 2020, Mr. de Masi, through an introduction from Ann Mather, a Board member at the time, contacted an entertainment company, which we refer to as Company F, and later that day, Mr. de Masi introduced members of our senior management to representatives of Company F.
On October 12, 2020 and October 19, 2020, respectively, Glu entered into confidentiality agreements with Company B and Company F.
On October 22, 2020, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. At this meeting, the Board discussed the status of the communications with each of the parties that Messrs. Earl and de Masi had previously contacted regarding such party’s potential interest in collaboration opportunities with Glu and directed our senior management and financial advisors to follow up with Companies A through F and Electronic Arts to inform them that Glu would be conducting a strategic review process and soliciting proposals to acquire Glu on terms that would be attractive to our stockholders, and to arrange meetings with our senior management with those parties that expressed interest. Companies A through F were selected based on the potential strategic value to those parties of a transaction with Glu and the financial feasibility of such a transaction for each of them. In addition, the Board discussed a potential acquisition by Glu. At the end of the meeting, the Board approved the execution by us of engagement letters with each of the three financial advisors.
On October 23, 2020, Glu entered into an engagement letter with Morgan Stanley, engaging Morgan Stanley as a financial advisor in connection with a potential sale of Glu.
On the same day, Mr. Earl contacted a representative of Company A to inform him that Glu had retained financial advisors who would reach out to Company A to discuss next steps.
On October 24, 2020, Mr. Earl spoke with a representative of Company A to introduce Company A to Goldman Sachs and Morgan Stanley so the parties could discuss next steps.
On October 26, 2020, Mr. Earl had a telephone conversation with Mr. Jorgensen, and informed Mr. Jorgensen that we would be interested in exploring a potential acquisition of Glu by Electronic Arts on terms that would be attractive to our stockholders.
Also on October 26, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley contacted Mr. Jorgensen to discuss Electronic Arts’ participation in our strategic process and to schedule due diligence meetings with members of our senior management. On the same day, Mr. Earl spoke with a representative of Company E, and the representative of Company E reiterated that Company E could be interested in a potential acquisition of Glu and indicated that he would be in touch with Mr. Earl when Company E was in a position to evaluate such a transaction.
October 26, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley contacted a representative of Company A to inform him that Glu was commencing a review of strategic alternatives and would be soliciting proposals to acquire Glu on terms that would be attractive to our stockholders and to schedule due diligence meetings with members of our senior management with representatives of Company A. The representative of Company A verbally indicated that Company A might be able to increase the proposed per share price from the $9.25 per share that it had previously proposed, after it had an opportunity to conduct additional due diligence.
October 27, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley contacted a representative of Company D to inform Company D that Glu was commencing a review of strategic alternatives and would be soliciting proposals to acquire Glu on terms that would be attractive to our stockholders, and to determine whether Company D would be interested in participating in that process.
Also on October 27, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with Mr. Jorgensen at Electronic Arts to provide a formal overview of the strategic review process and to schedule a management presentation meeting.
On October 28, 2020, a representative of Company C indicated to a representative of Morgan Stanley that Company C would not make a proposal to acquire Glu.
Also on October 28, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with a representative of Company B to provide a formal overview of the strategic review process, and to inform Company B that Glu would be soliciting proposals to acquire Glu on terms that would be attractive to our stockholders and to schedule a management presentation meeting.
October 29, 2020, the Board held its regularly scheduled quarterly meeting, at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. Mr. Ludwig reviewed Glu’s fourth quarter 2020 forecast and a financial plan through 2023 prepared based on information and perspectives from Glu’s game development studios, which did not have adjustments to reflect increased marketing spend for new title launches and reflected planned contributions from new titles that were not risk-adjusted (the “Three Year Studio Plan”). In addition, Mr. Ludwig reviewed a financial plan through 2023 that had been prepared by our management and reflected increased marketing spend for new title launches and reflected less optimistic assumptions regarding contributions from new titles and from key existing core titles, which we refer to as “Growth Games” (the “Three Year Board Plan”). The Three Year Studio Plan and Three Year Board Plan had been circulated to the Board a week prior to the meeting. The Board discussed the Three Year Studio Plan and Three Year Board Plan and the risks and opportunities faced by Glu as an independent company, and discussed with management and representatives of Goldman Sachs and Morgan Stanley the extension of the Three Year Studio Plan and the Three Year Board Plan through 2025. Goldman Sachs and Morgan Stanley also provided perspectives on our stand-alone strategy and on potential acquisitions by Glu. The Board then discussed the risks and uncertainties related to Glu’s business and execution of the plans. Representatives of Goldman Sachs and Morgan Stanley then updated the Board on the status of discussions with interested parties, and the Board directed our management and financial advisors to continue to engage with these parties to further their due diligence, including presentations by our senior management.
Also on October 29, 2020, Glu entered into a confidentiality agreement with Electronic Arts.
Between November 2, 2020 and November 11, 2020, Messrs. Earl and Ludwig, along with representatives of Goldman Sachs and Morgan Stanley, held a series of separate meetings with representatives of Electronic Arts and Company A, Company B, Company D and Company F, respectively, at which Messrs. Earl and Ludwig provided an overview of Glu’s business and information regarding Glu’s operations, technology, games, employees, financial position and market opportunity, as well as forecasted financial information from the Three Year Studio Plan, and discussed the strategic rationale behind a potential acquisition of Glu. Following these meetings, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with Jeff Chaiken, the Head of Strategy and Corporate Development of Electronic Arts, and with representatives of Companies A, B, D and F regarding their respective due diligence priorities and process.
On November 5, 2020, Glu reported its results of operations for the quarter ended September 30, 2020, and Glu’s stock price increased 27% from its closing price of $6.91 on November 5, 2020 to a closing price of $8.79 on November 6, 2020. Also on November 5, 2020, Glu entered into a confidentiality agreement with Company D.
On November 6, 2020, Glu entered into engagement letters with Goldman Sachs and UBS, engaging each of Goldman Sachs and UBS as financial advisors in connection with a potential sale of Glu.
November 7, 2020, a representative of Company A reiterated its interest in proceeding with due diligence and indicated that Company A might be able to increase the proposed per share price from the $9.25 per share in cash that it had previously proposed after it had an opportunity to assess Glu’s game development pipeline.
November 12 and 13, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley provided Electronic Arts and Companies A, B, and D with letters describing the process for submitting indications of interest for an acquisition of Glu and requesting such indications by November 23, 2020.
November 16, 2020 a representative of Company F indicated to representatives of Goldman Sachs and Morgan Stanley that Company F would not make a proposal to acquire Glu. Also on November 16, 2020, a representative of another gaming company, which we refer to as Company G, contacted Mr. Earl to express interest in exploring a potential business combination with or acquisition of Glu.
On November 18, 2020, at the direction of the Board, representatives of Goldman Sachs and Morgan Stanley provided Company A with additional information regarding Glu’s game development pipeline and plans to monetize Glu’s planned new game titles.
On November 19, 2020, Mr. Earl introduced a representative of Company G to representatives of Goldman Sachs and Morgan Stanley and informed Company G that Glu was engaged in a strategic review process and was soliciting proposals.
On the same day, Glu entered into a confidentiality agreement with Company G.
On November 20, 2020, a representative of Company A spoke with a representative of Morgan Stanley and confirmed that they were still evaluating their proposal to acquire Glu. Also on November 20, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with representatives of Company G regarding a potential acquisition of Glu and our strategic review process, and spoke with representatives of Company D, who indicated that Company D was still evaluating whether to make a proposal.
November 23, 2020, Glu received a non-binding indication of interest from Electronic Arts for an acquisition of all of the outstanding common stock and common stock equivalents of Glu for a price per share of $11.50 in cash (the “November 23 Proposal”), representing a 40% premium to Glu’s 30-day volume weighted average stock price, and a 19% premium to Glu’s closing stock price on November 20, 2020 (the most recent trading day). The November 23 Proposal indicated that the proposed transaction would not be subject to any financing contingency and that Electronic Arts would want to retain Glu’s management and employees. In addition, Electronic Arts requested that Glu agree to negotiate with Electronic Arts on an exclusive basis for a period of 30 days following the date of execution, which period would be automatically extended for successive 14-day periods unless terminated by either party. A copy of the November 23 Proposal was provided to the Board.
Also on November 23, 2020, a representative of Company D informed representatives of Goldman Sachs and Morgan Stanley that Company D would not be making a proposal to acquire Glu, a representative of Company B informed representatives of Goldman Sachs and Morgan Stanley that Company B would not be making a proposal to acquire Glu at this time but would continue to evaluate the opportunity, and a representative of Company A indicated to representatives of Goldman Sachs and Morgan Stanley that there was potential for Company A to improve their $9.25 per share in cash proposal to acquire Glu subject to their ability to review our development of planned new games. Subsequently, we provided additional due diligence information to Company A regarding planned new games, including access to in-development versions of certain games.
On November 24, 2020, members of our senior management, along with representatives of Goldman Sachs and Morgan Stanley, met with members of the management of Company G, at which members of our senior management provided an overview of Glu’s business and information regarding Glu’s operations, technology, games, employees, financial position and market opportunity, and discussed the strategic rationale behind a potential acquisition of Glu.
On November 25, 2020, Following this discussion, the Board further discussed the November 23 Proposal and the potential response to be made to Electronic Arts, and the process to be conducted with other participants in the strategic review process. The Board then directed the representatives of Goldman Sachs and Morgan Stanley to indicate to Electronic Arts that the price per share proposed in the November 23 Proposal was not adequate and that Glu would not be able to enter into exclusivity based on the November 23 Proposal, but that Glu would provide Electronic Arts with access to additional members of our senior management, and provide access to an online data room, for purposes of Electronic Arts’ due diligence review, to enable Electronic Arts to provide a revised view of the value of Glu. In addition, the Board directed the members of our senior management and financial advisors to continue providing due diligence information to the other remaining participants in the strategic review process and to contact them to determine their continued interest in proceeding in that process and request their proposals for a transaction.
November 25, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley informed a representative of Electronic Arts that the price per share proposed in the November 23 Proposal was not adequate, that Electronic Arts would need to increase its price to be competitive and that Glu would not be able to enter into exclusivity based on the November 23 Proposal, but that Glu would provide Electronic Arts with access to additional members of our senior management and access to an online data room for purposes of Electronic Arts’ due diligence review, and requested that Electronic Arts provide a revised proposal following that additional due diligence.
On November 30, 2020, a representative at Company E called Mr. Earl and asked to meet with him and Mr. Ludwig for a presentation regarding Glu’s business.
On December 1, 2020, representatives of Goldman Sachs and Morgan Stanley spoke with a representative of Company E, and the representative of Company E indicated that Company E could evaluate the potential acquisition quickly following Messrs. Earl and Ludwig’s management presentation.
December 2, 2020, representatives of Glu provided Electronic Arts with access to an online data room. Representatives of Electronic Arts and its advisors continued their due diligence review of Glu, including a review of materials in the online data room, through February 8, 2021.
Also on December 2, 2020, Messrs. Earl and Ludwig, along with representatives of Goldman Sachs and Morgan Stanley, met with members of the management of Company E and provided an overview of Glu’s business information regarding its operations, games, technology, products, employees, financial position and market opportunity, and discussed the strategic rationale behind a potential acquisition of Glu. In addition, on December 2, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with a representative of Company G who reaffirmed the interest of Company G in continuing discussions and due diligence activities.
Also on December 2, 2020, a representative of Company B informed representatives of Goldman Sachs and Morgan Stanley that Company B would not be making a proposal to acquire Glu
December 4, 2020, a representative of Company E informed representatives of Goldman Sachs and Morgan Stanley that Company E would not be making a proposal to acquire Glu.
December 7, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley provided Company G with a letter describing the process for submitting proposals for an acquisition of Glu, and requesting a proposal by December 10, 2020.
December 7, 2020, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. At this meeting, Mr. Ludwig reviewed with the Board versions of the Three Year Board Plan that extended the forecasts through 2025 but was otherwise consistent with the Three Year Board Plan (the “Board Plan”) and of the Three Year Studio Plan that extended the forecasts through 2025 but was otherwise consistent with the Three Year Studio Plan (the “Studio Plan”). Additional information regarding the Studio Plan and Board Plan is set forth under the caption “— Financial Projections.” In addition, Mr. Ludwig reviewed with the Board a financial forecast through 2025 that took into greater consideration the risks and uncertainties facing Glu as an independent company, including the risks of timely developing and launching new titles, and achieving market acceptance and profitability for new games, continuing to enhance and monetize existing games, as well as other execution risks, industry risks (including the expected IDFA changes) and macroeconomic risks including the potential impact of post COVID-19 pandemic impacting consumers appetite for mobile games (the “Sensitivity Case”). The Board members and Mr. Ludwig discussed the Studio Plan, the Board Plan and the Sensitivity Case, and following this discussion, the Board directed Mr. Ludwig to revise the Sensitivity Case to reflect lower assumptions regarding our growth in 2021, for the Board’s further review, to assist the Board’s decisions in the course of the strategic process and to be used by Glu’s financial advisors in their financial analysis of any proposed transaction. Representatives of Goldman Sachs and Morgan Stanley then reviewed the status of discussions with parties that had expressed interest in a potential transaction and a representative of Fenwick & West discussed with the Board its fiduciary duties in connection with its comprehensive review of strategic alternatives.
December 10, 2020 through December 18, 2020, members of Glu management and representatives of Electronic Arts held diligence sessions covering topics that included finance, accounting, legal, human resources, technology, labor and key game studios.
December 11, 2020, a representative of Company G spoke with representatives of Goldman Sachs and Morgan Stanley and verbally proposed an acquisition of Glu at a 20 to 25% premium to the current stock price (implying a price per share of $11.00 to $11.50 based on Glu’s closing stock price of $9.06 per share on December 10, 2020), in which the consideration would consist 50% of cash and 50% of Company G stock.
December 11, 2020, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. At this meeting, Mr. Ludwig reviewed a revised Sensitivity Case, which reflected the Board’s input at its prior meeting. Additional information regarding the Sensitivity Case is set forth under the caption “— Financial Projections.” Representatives of Goldman Sachs and Morgan Stanley then described the verbal proposal received earlier that day from Company G, and the Board discussed this proposal. The Board and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West then discussed the process for due diligence and further discussions with Company A, Company G and Electronic Arts. Representatives of Fenwick & West reviewed with the Board the Board’s fiduciary duties in connection with its comprehensive strategic review process, and discussed certain material terms of a draft Merger Agreement that could be provided to Electronic Arts (and, if and when appropriate, to Company A and Company G) with the goal of permitting the Board to further consider the proposal from Electronic Arts (and potential other parties), including a structure for the transaction as a tender offer, the ability of the Board to engage in discussions with respect to unsolicited proposals and to terminate the Merger Agreement to enter into an agreement for a superior proposal upon payment of a termination fee representing 2% of the equity value of Glu in the Merger, and the treatment of outstanding equity awards. The Board discussed these terms and then directed the representatives of Goldman Sachs and Morgan Stanley to provide this draft Merger Agreement to Electronic Arts and to Company A and Company G.
December 11, 2020, Electronic Arts was provided with the draft Merger Agreement, and on December 12, 2020, a representative of Simpson Thacher & Bartlett LLP (“Simpson Thacher”), Electronic Arts’ outside counsel, and a representative of Fenwick & West discussed the tender offer structure that was reflected in the draft Merger Agreement.
December 15, 2020, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. Representatives of Goldman Sachs and Morgan Stanley reviewed the proposals from Company A, Company G and Electronic Arts and the status of each party’s due diligence review. Representatives of Goldman Sachs and Morgan Stanley then presented preliminary financial analyses of Glu. The Board also provided further guidance to management and the financial and legal advisors on the strategic review process, and directed our financial advisors to continue to reach out to Company A and Company G to further their due diligence review and their evaluation of a potential acquisition of Glu.
December 15, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with a representative of Company G and indicated that, based on their initial proposal, Glu would continue to engage with Company G in due diligence, and the representative of Company G indicated that Company G wished to continue to evaluate a potential acquisition of Glu. On December 16, 2020, Company G was provided with access to our online data room and the draft Merger Agreement.
December 17, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley provided the draft Merger Agreement to Company A, and noted that there was a Board meeting on December 23, 2020 if Company A had any update to provide, and a representative of Company A responded that it would inform Goldman Sachs if Company A had any update before that date.
December 21, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley contacted a representative of Company G to discuss whether Company G required additional due diligence meetings at that time.
December 21, 2020, Electronic Arts provided a revised non-binding indication of interest for an acquisition of all of the outstanding common stock and common stock equivalents of Glu that increased its proposed price to $12.00 per share in cash (the “December 21 Proposal”), representing a 32% premium to Glu’s 30-day volume weighted average stock price, and a 25% premium to Glu’s closing stock price on December 18, 2020 (the most recent trading day). The December 21 Proposal again included a request for a 30-day exclusivity period, with such period to be automatically extended for successive 14 day periods unless terminated by either party.
The December 21 Proposal was accompanied by a revised draft of the Merger Agreement that provided for, among other things, a transaction structured as a single-step merger, the conversion of unvested stock options and other equity awards into equivalent Electronic Arts equity awards, revisions to the representations and warranties to be made by Glu and covenants regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger, revisions to the circumstances under which Glu would be required to pay Electronic Arts a termination fee and an increase in the amount of the termination fee to 3.75% of the equity value of Glu in the Merger. In addition, the revised draft of the Merger Agreement provided that Electronic Arts would receive a voting agreement from an affiliate of Tencent that held approximately 12% of the outstanding Glu Common Stock. A copy of the December 21 Proposal was provided to the Board.
December 22, 2020, noting that each of Company B, Company C, Company D, Company E and Company F had expressly declined to make a proposal to acquire Glu and describing the status of discussions with Company A and Company G. The representatives of Goldman Sachs and Morgan Stanley also noted that none of the parties contacted with respect to a potential acquisition of Glu had made a proposal for a transaction other than Electronic Arts, Company A and Company G. The Board and representatives of Goldman Sachs and Morgan Stanley then discussed the approach to be taken in responding to Electronic Arts. The Board determined that the best means of achieving the highest purchase price would be to make a specific counter-proposal to Electronic Arts, and it discussed the counter-proposal to be made.
December 22, 2020, a representative of Electronic Arts requested due diligence meetings with additional members of our senior management, including meetings with Glu personnel having responsibility for Glu’s games and technology, corporate functions, finance and human resources.
On the same day, a representative of Company A indicated to representatives of Goldman Sachs and Morgan Stanley that Company A had not changed its initial $9.25 per share in cash proposal and would not submit a revised proposal.
December 23, 2020, During the meeting, representatives of Goldman Sachs and Morgan Stanley again discussed the December 21 Proposal, the status of Electronic Arts’ due diligence and the discussions to date with Company A and Company G, including Company A’s indication that it had not changed its initial proposal and would not submit a revised proposal. The representatives of Goldman Sachs and Morgan Stanley then reviewed preliminary financial analyses of Glu. The Board and representatives of Goldman Sachs and Morgan Stanley then discussed the response to the December 21 Proposal, and, following this discussion, the Board directed the representatives of Goldman Sachs and Morgan Stanley to inform Electronic Arts that the $12.00 price per share in cash proposed in the December 21, 2020 Proposal was not adequate, to counter-propose a price per share of $13.25 in cash, and to indicate to Electronic Arts that Glu would not be willing to provide access to additional members of the Glu management team for due diligence discussions unless Electronic Arts increased its per share price.
December 23, 2020, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with Mr. Chaiken and other representatives of Electronic Arts and of J.P. Morgan Securities LLC (“J.P. Morgan”), Electronic Arts’ financial advisor, and counter-proposed a price per share of $13.25 in cash, and indicated that Glu would not be willing to provide access to additional members of the Glu management team for due diligence discussions unless Electronic Arts increased its per share price.
December 27, 2020, we delivered a revised draft of the Merger Agreement to Electronic Arts. This revised draft, among other things, (i) accepted Electronic Arts’ proposed structure as a single-step merger, (ii) revised the representations and warranties made by Glu, (iii) revised the covenants regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger and (iv) revised the circumstances under which Glu would be required to pay Electronic Arts a termination fee. The draft also proposed a reduction to the amount of the termination fee to 2.75% of the equity value of Glu in the Merger, as opposed to Electronic Arts’ proposal of 3.75% of the equity value of Glu in the Merger.
December 28, 2020, Mr. Chaiken contacted representatives of Goldman Sachs and Morgan Stanley to reiterate Electronic Arts’ request for due diligence meetings with additional members of Glu management, particularly the creative leaders for Glu’s key games.
December 29, 2020, Mr. Earl spoke with Mr. Jorgensen and reiterated Glu’s counter-proposal for a price of $13.25 per share in cash and stated that Glu did not want to involve additional members of its management team in the due diligence process until it had confidence that there was a clear path to an agreement on price. Mr. Jorgensen responded that the additional diligence meetings were necessary in order for Electronic Arts to further its valuation analysis but that Electronic Arts was not prepared to pay $13.25 per share. He noted that Electronic Arts believed that it had already significantly stretched on value from the November 23 Proposal to the December 21 Proposal. Mr. Jorgensen spoke again with Mr. Earl later that date and reiterated Electronic Arts’ strong interest in a transaction at the $12.00 price per share previously proposed by Electronic Arts and the importance to Electronic Arts of the requested due diligence meetings. Mr. Jorgensen reiterated that at $12.00 per share, Electronic Arts had already stretched significantly on price since the November 23 Proposal and would not be able to stretch any further without additional due diligence.
After discussing the matter with the Board, Mr. Earl spoke with Mr. Jorgensen and informed him that if Electronic Arts were to increase its indication of interest to $12.50 in cash in writing and provide for the possibility of a further price increase following completion of due diligence, then Glu could provide access to four additional members of the Glu management team for Electronic Arts’ due diligence. Mr. Earl then summarized to the Board his discussion with Mr. Jorgensen.
December 30, 2020, Simpson Thacher provided Fenwick & West with a revised draft of the Merger Agreement, which proposed a number of changes to the draft circulated by Fenwick & West, including proposed revisions to (i) the representations and warranties made by Glu, (ii) the covenants regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger, (iii) covenants on the part of Electronic Arts with respect to continuation of employee compensation and benefits after the Merger, and (iv) the circumstances under which Glu would be required to pay Electronic Arts a termination fee. In addition, this revised draft increased the amount of the termination fee to 3.5% of the equity value of Glu in the Merger.
January 1, 2021, Mr. Chaiken contacted representatives of Goldman Sachs and Morgan Stanley further emphasizing the importance of scheduling due diligence meetings with key creative leaders as soon as possible and reiterating that pending those discussions, Electronic Arts may be willing to increase its offered purchase price above the current $12.00 per share in cash purchase price.
January 3, 2021, Mr. Earl spoke with Mr. Jorgensen and reiterated the request to receive confirmation regarding an increase in price in writing, and Mr. Jorgensen agreed that Electronic Arts would send such a written confirmation no later than January 4, 2021. Mr. Earl and Mr. Jorgensen also discussed the process for further due diligence meetings.
January 4, 2021, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley contacted a representative of Company G and indicated that Glu’s strategic process was proceeding and asked whether Company G required additional due diligence information at that time.
January 4, 2021, a representative of Electronic Arts delivered a revised non-binding indication of interest for an acquisition of Glu that proposed a per share price of up to $12.50 per share in cash (the “January 4 Proposal”), representing a 31% premium to Glu’s 30-day volume weighted average stock price, and a 39% premium to Glu’s closing stock price on December 31, 2020 (the most recent trading day). The January 4 Proposal again included a request for a 30-day exclusivity period, such period to be automatically extended for successive 14-day periods unless terminated by either party.
January 5, 2021, Mr. Earl and representatives of Goldman Sachs and Morgan Stanley reviewed the discussions with Electronic Arts and the Board discussed the response to the January 4 Proposal. A representative of Fenwick & West then reviewed the fiduciary duties of the Board and its officers. The Board then directed the representatives of Goldman Sachs and Morgan Stanley to inform Electronic Arts that the Board did not support proceeding if the price per share could be less than $12.50, and was looking for a higher price, but would authorize additional due diligence meetings with certain additional members of the Glu management team if there appeared to be a path to a higher price.
On January 5, 2021, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with Mr. Chaiken and other representatives of Electronic Arts and of J.P. Morgan, and indicated that the Board did not support proceeding with the transaction if the price per share could be less than $12.50 and was looking for a higher price, but would authorize additional due diligence meetings with certain additional members of the Glu management team if there appeared to be a path to a higher price.
On January 7, 2021, in response to the discussions with the financial advisors on the same day, Mr. Chaiken indicated that Electronic Arts would not be able to offer more than $12.50 per share.
January 11, 2021, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. At this meeting, the Board, Mr. Earl and representatives of Goldman Sachs and Morgan Stanley discussed the recent communications with Electronic Arts and the strategy to be used in negotiating the price proposed by Electronic Arts. A representative of Fenwick & West also discussed fiduciary duty considerations. The Board provided guidance to management and the financial and legal advisors regarding the negotiation strategy with Electronic Arts, Glu’s stand-alone operating strategy and other potential strategic alternatives.
January 14, 2021, Electronic Arts delivered a revised non-binding indication of interest, dated January 13, 2021, for an acquisition of Glu that proposed a price of $12.50 per share in cash (the “January 13 Proposal”) representing a 35% premium to Glu’s 30-day volume weighted average stock price, and a 37% premium to Glu’s closing stock price on January 13, 2021 (the most recent trading day). The January 13 Proposal included a request for due diligence meetings with a list of Glu personnel, and again included a request for a 30-day exclusivity period, such period to be automatically extended for successive 14-day periods unless terminated by either party.
Also on January 14, 2021, members of our senior management held an additional due diligence meeting with representatives of Company G. Following this meeting, Company G did not request additional due diligence information or provide any further updates regarding the status of their proposal.
Also on January 14, 2021, as directed by the Board, representatives of Goldman Sachs and Morgan Stanley spoke with Mr. Chaiken and other representatives of Electronic Arts and J.P. Morgan and discussed the process for additional due diligence meetings.
January 15, 2021, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. At this meeting, the Board, Mr. Earl and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West discussed the January 13 Proposal and the response to be made to Electronic Arts. The representatives of Goldman Sachs and Morgan Stanley also reviewed the discussions that had occurred with Company A and Company G, and the Board noted that the proposals made by both parties were lower than the price proposed in the January 13 Proposal, that Company A had indicated that it would not submit a revised proposal, that Company G had only sought limited due diligence, and that the Company G proposal provided for merger consideration consisting half of Company G common stock, which represented additional complexity and uncertainty, and potential delay to completion of a transaction. The Board authorized Glu to provide Electronic Arts with meetings with certain additional Glu employees, and with a review of the preliminary results of Glu for the quarter ended December 31, 2020, the Board Plan and the Sensitivity Case, and to request that Electronic Arts then reaffirm the $12.50 per share in cash purchase price indicated in the January 13 Proposal. The Board then approved the entry into exclusivity with Electronic Arts through February 8, 2021, and the scheduling of the remaining due diligence meetings requested by Electronic Arts, following (and conditioned upon), that reaffirmation.
Following that meeting, on January 15, 2021, Mr. Earl spoke with Mr. Jorgensen to discuss matters related to the due diligence meetings with the additional management personnel. On the same day, Fenwick delivered to Tencent a formal notice that Glu was contemplating a potential acquisition resulting in a change of control of Glu, in accordance with the terms of the Voting and Standstill Agreement between Glu and Tencent.
January 17, 2021, representatives of Goldman Sachs and Morgan Stanley delivered to Electronic Arts a revised draft of the January 13 Proposal that provided for exclusivity until February 8, 2021 (or such later date as the parties may mutually agree), with no provision for automatic extension thereafter, and which would terminate if Electronic Arts proposed a reduction in the proposed price per share. On January 18, 2021, representatives of Goldman Sachs and Morgan Stanley communicated with Mr. Chaiken and representatives of J.P. Morgan about this revised draft, and a representative of Fenwick & West discussed the revised draft with a representative of Simpson Thacher. On January 19, 2021, Glu and Electronic Arts executed this revised indication of interest.
On January 20, 2021, Fenwick & West provided Simpson Thacher and Electronic Arts with a revised draft of the Merger Agreement, which proposed a number of changes to the draft previously circulated by Simpson Thacher, including proposed revisions to (i) the representations and warranties made by Glu, (ii) the covenants regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger, (iii) covenants on the part of Electronic Arts with respect to post-Merger compensation matters and (iv) the circumstances under which Glu would be required to pay Electronic Arts a termination fee. In addition, this revised draft reduced the amount of the termination fee to 3% of the equity value of Glu in the Merger.
January 22, 2021, representatives of Electronic Arts attended due diligence meetings with four creative leaders for Glu’s key games who had not previously met with representatives of Electronic Arts. Mr. Earl spoke with Mr. Jorgensen following these meetings to discuss Electronic Arts’ impressions of the meetings and the process for completing due diligence and Merger Agreement negotiations.
January 23, 2021, Mr. Chaiken contacted representatives of Goldman Sachs and Morgan Stanley and affirmed Electronic Arts’ interest in the potential acquisition of Glu at the $12.50 price per share in cash set forth in the January 13 Proposal, and Mr. Chaiken requested due diligence meetings with additional Glu employees in the upcoming week.
Also on January 23, 2021, Fenwick & West provided Simpson Thacher with an initial draft of the disclosure schedules required by the Merger Agreement, other than schedules setting forth certain exceptions to the covenants regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger, which schedules were still under review by members of Glu’s senior management. From January 22, 2021 through February 8, 2021, representatives of Fenwick & West and Simpson Thacher negotiated the Merger Agreement and the disclosure schedules.
On January 25, 2021, Messrs. Earl and Mr. Ludwig met with representatives of Electronic Arts and J.P. Morgan to review Glu’s preliminary results of operations for the quarter ended December 31, 2020 and Glu’s expectations for 2021.
From January 26, 2021 through January 29, 2021, representatives of Electronic Arts attended due diligence meetings with additional Glu management personnel that had been requested by Electronic Arts related to Glu’s financials, corporate functions, technology, human resources and gaming studios. In addition, on January 28, 2021, Electronic Arts was provided with the Board Plan and Sensitivity Case through the online data room.
On January 26, 2021, the Board was provided with letters from each of Goldman Sachs and Morgan Stanley disclosing certain relationships between each of the financial advisors, on the one hand, and Electronic Arts and other relevant parties, on the other. The relationships disclosed in the letters from Goldman Sachs and Morgan Stanley are described in more detail under “— Opinions of Glu’s Financial Advisors.”
Also on January 26, 2021, Simpson Thacher provided an initial draft of the proposed Voting Agreement between Electronic Arts and an affiliate of Tencent, and the parties agreed on the final form of Voting Agreement on February 2, 2021.
On January 27, 2021, the Board held a regularly scheduled quarterly meeting, at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. At this meeting, representatives of Fenwick & West discussed the fiduciary duties of the Board in evaluating the proposed transaction and the terms of the Merger Agreement. The Board then reviewed the relationships of the financial advisors that were disclosed in the letters that had been provided to the Board on January 26. Representatives of Goldman Sachs and Morgan Stanley, and Messrs. Earl and Ludwig, then provided the Board an update on the recent communications with representatives of Electronic Arts and the expected process for completion of Electronic Arts’ due diligence. Representatives of Fenwick & West then reviewed the negotiations of the Merger Agreement, its material terms and the remaining open issues, and the representatives of Fenwick & West, and Mr. Earl, reviewed with the Board certain exceptions to the covenants in the Merger Agreement regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger that would be proposed to Electronic Arts relating to employee compensation and hiring (none of which related to compensation of executive officers). The Board also discussed Glu’s stand-alone operating strategy and other potential strategic alternatives. The Board then discussed the financial analyses to be performed by Goldman Sachs and Morgan Stanley and the financial forecasts to be utilized in their analyses. The representatives of Goldman Sachs and Morgan Stanley then left the meeting, and the Board, together with Messrs. Earl and Ludwig, continued to discuss this topic.
January 28, 2021, Mr. Earl spoke with Mr. Jorgensen regarding the desire for certain exceptions to the covenants in the Merger Agreement regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger relating to employee compensation and hiring. Also on January 28, 2021, Fenwick & West provided Simpson Thacher with an initial draft of a proposed schedule of exceptions to the covenants in the Merger Agreement regarding the operation of Glu’s business between the execution of the Merger Agreement and the closing of the Merger, including exceptions relating to hiring and compensation matters (none of which related to compensation of executive officers), and representatives of Fenwick & West and Simpson Thacher, and Messrs. Earl and Jorgensen negotiated these exceptions from January 28, 2021 through February 8, 2021.
February 1, 2021, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. Mr. Ludwig discussed Glu’s proposed communications plans with regard to the Merger. Mr. Earl then provided an update on the status of the proposed transaction and his most recent discussions with Electronic Arts. Following that discussion, representatives of Goldman Sachs and Morgan Stanley presented their respective preliminary financial analyses of the offer price of $12.50 in cash per share.
From February 4 through February 8, 2021, Fenwick & West and Simpson Thacher continued to exchange drafts of the Merger Agreement and related disclosure schedules.
February 5, 2021, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. Mr. Earl provided an update on the status of the proposed transaction. Representatives of Fenwick & West then reviewed with the Board the terms of the Merger Agreement, including the resolution of open issues, and discussed the fiduciary duties of the Board in evaluating the proposed transaction and the terms of the Merger Agreement. Representatives of Goldman Sachs and Morgan Stanley reviewed their firms’ respective preliminary financial analyses of the offer price of $12.50 in cash per share.
February 8, 2021, the Board held a meeting at which members of our senior management and representatives of Goldman Sachs, Morgan Stanley and Fenwick & West were present. Representatives of Fenwick & West reviewed with the Board the terms of the Merger Agreement, the form of which had been previously distributed to the members of the Board, and again discussed the fiduciary duties of the Board in evaluating the proposed transaction and the terms of the Merger Agreement. Representatives of Goldman Sachs then rendered to the Board Goldman Sachs’ oral opinion, subsequently confirmed in Goldman Sachs’ written opinion dated as of February 8, 2021, to the effect that, as of the date of Goldman Sachs’ written opinion, and based upon and subject to the factors and assumptions set forth in Goldman Sachs’ written opinion, the $12.50 in cash per share of Glu Common Stock to be paid to the holders (other than Electronic Arts and its affiliates) of the shares of Glu Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders. For additional information, see the section entitled “Proposal 1: Adoption of the Merger Agreement — Opinion of Goldman Sachs & Co. LLC” beginning on page 45 and Annex B-1 to this proxy statement. The representatives of Morgan Stanley rendered to the Board Morgan Stanley’s oral opinion, subsequently confirmed in writing, that, as of February 8, 2021, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the Per Share Merger Consideration to be received by the holders of shares of Glu Common Stock (other than the Excluded Shares) pursuant to the Merger Agreement was fair from a financial point of view to such holders of shares of Glu Common Stock. For a detailed discussion of the opinions of Goldman Sachs and Morgan Stanley, please see below in “— Opinions of Glu’s Financial Advisors.” The written opinions rendered by Goldman Sachs and Morgan Stanley to the Board are attached to this Proxy Statement as Annex B-1 and Annex B-2, respectively. The representatives of the Financial Advisors then left the meeting and, following additional discussion and consideration of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Board unanimously (i) determined that the Merger and other transactions contemplated by the Merger Agreement, individually and in the aggregate, are fair to and in the best interests of Glu and its stockholders, (ii) approved the Merger Agreement and the transactions contemplated therein (including the execution, delivery and performance thereof) and declared it advisable that Glu enter into the Merger Agreement and consummate the transactions contemplated therein in accordance with the DGCL and (iii) recommended that Glu’s stockholders adopt the Merger Agreement.
In the afternoon of February 8, 2021, upon the closing of trading on the Nasdaq Stock Market, Glu and Electronic Arts executed the Merger Agreement, Electronic Arts and an affiliate of Tencent executed the Voting Agreement and Glu and Electronic Arts issued a joint press release announcing the execution of the Merger Agreement.