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Proposed Merger of Software Publishers Canceled

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A proposed merger between two California-based software publishers, which analysts said would have created the world's largest video-game and educational-software company, has collapsed in a dispute over stock prices.

Broderbund Software Inc. of Novato and Electronic Arts Inc. of San Mateo announced last week that they were calling off a merger that they had announced and publicized with great fanfare in February. (See Education Week, Feb. 23, 1994.)

Officials for both companies said at that time that they expected to complete the $400 million merger this month.

The announcement last week that the proposed merger had been canceled surprised market analysts because officials of both companies had enthusiastically predicted a successful union and had discussed plans to expand into the international software market.

The merger had also been expected to give both companies a competitive edge in the rapidly growing home market for education titles, which recently has attracted the attention of such industry giants as the Microsoft Corporation of Redmond, Wash. (See Education Week, Jan. 12, 1994.)

In addition, analysts have argued that the educational-software sector is poised for rapid growth because of the boom in multimedia software for the home market. (See Education Week, Feb. 9, 1994.)

The failure of the deal also was surprising because federal regulators already had approved the merger.

A Mutual Decision

Broderbund will pay Electronic Arts a $10 million fee for causing the collapse of the proposed merger by failing to secure changes in the terms of the stock deal, company officials said.

But spokesmen for both companies agreed that the final decision to end their relationship was mutual. They blamed recent declines in their respective stock prices for souring the deal.

"Recent trading prices of the two companies and the parties' respective assessment of the transaction,'' officials said in a statement, "caused [Broderbund's directors] to conclude that a combination under the terms of current agreement did not appropriately reflect the values of the two companies.''

While the value of Electronic Arts stock fell in the wake of the announcement, Broderbund stock increased by $6.50 a share.

Familiar, Family-Owned

Broderbund, a family-owned business founded in 1980, is well known among educators and parents for its line of products featuring a character called Carmen Sandiego.

Such games as "Where in the World Is Carmen Sandiego?'' and "Where in Time Is Carmen Sandiego?'' are designed to encourage children to track the title character--a "master criminal'' who perpetrates high-profile crimes--across the continents or through history.

As they search for clues to her whereabouts, players learn about geography or history.

The Public Broadcasting Service has adapted "Where in the World Is Carmen Sandiego?'' as a successful television program.

At least 85 programs published by Broderbund were among the roughly 1,000 highest-rated educational-software programs included in "Only the Best,'' a guide to exemplary educational software published between 1985 and 1993.

Analysts estimate that the two companies currently control roughly 17 percent of the retail software market.

Broderbund reported sales of $96 million in 1993, while Electronic Arts recorded $298 million in sales.

Officials of Broderbund and Electronic Arts had estimated that their combined annual sales would grow to $500 million as a result of the merger.

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