GREE Is Good: How PerBlue Sold Its DragonSoul to Japanese Firm

Earlier this month, PerBlue, a Madison, WI-based developer of games that can be downloaded and played on mobile devices, said that it had sold the rights to one of its games, DragonSoul, for an undisclosed sum.

The buyer, San Francisco-based GREE International Entertainment (GIE), is part of GREE, a Japan-based company listed on the Tokyo Stock Exchange.

According to a press release GIE put out on Oct. 6 announcing the deal, the only PerBlue asset that changed hands as part of the transaction was DragonSoul. “PerBlue’s current team will continue to create brand new games and support previously developed games that are not part of this acquisition,” GIE said in the release.

But from there, things get a bit murky. Key pieces of information—such as the amount of money that changed hands, and the structure of the deal—were not included in the announcement.

GIE’s press release did not say anything about either company forming new business entities prior to, or as part of, the DragonSoul deal. However, GIE’s acquisition of the game actually involved the purchase of an entire company. And according to an accountant who has guided businesses through mergers and acquisitions, the deal was structured in a way that is desirable to the seller from a tax standpoint, and allows investors seeking to get some cash from the buyer—rather than stock in the acquiring company—to do so.

Bill Pescatello—a member of PerBlue’s board of directors and partner at Chicago-based Lightbank, which has invested in the game maker—said in an e-mail that all PerBlue assets, excluding DragonSoul, were “spun out” into a new company before PerBlue officially sold the game to GIE.

Forrest Woolworth, PerBlue’s chief operating officer, confirmed Pescatello’s account, also via e-mail. Excluding DragonSoul, the company’s employees and all of its assets were transferred from PerBlue, Inc.—its previous legal name—to a new entity called PerBlue Entertainment, Inc., Woolworth said. (Going forward, the company will operate as PerBlue Entertainment, Inc.)

Since DragonSoul was the lone asset of PerBlue, Inc., following the spinout, there is little practical difference between purchasing the game itself and purchasing that entire entity. That is what GIE ended up doing: according to a document that by all appearances is on file with the Tokyo Stock Exchange (click here for an English translation, via Google), GIE acquired PerBlue, Inc., for “about $28 million” in cash. (The Milwaukee Journal Sentinel reported, citing sources at the companies, that on top of the $28 million paid in cash, GIE made a $7 million debt payout, bringing the total price to $35 million.)

Xconomy asked the Japan Exchange Group, which operates the Tokyo Stock Exchange, to verify the authenticity of the document. In response, an administrator for the group replied, by e-mail, “Companies [listed on the Tokyo Stock Exchange] disclose their corporate information at their own responsibility.”

Justin Beck, who co-founded PerBlue in 2008 and serves as CEO, declined to discuss financial details of the transaction when reached by phone. “None of the deal terms were disclosed,” Beck said. “I can make no comment on any of the terms, at all.”

Amanda Taggart, a spokeswoman for GREE, declined to comment on GIE’s purchase of DragonSoul beyond what the company said in its press release.

The document filed with the Tokyo Stock Exchange offers a rare glimpse into the financial performance of a privately held startup.

For instance, it contains a table showing the shareholders of PerBlue, Inc., and the size of their stakes before the two sides completed the deal. Beck is one of two individuals … Next Page »

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