Electronic Arts has entered into an agreement to purchase BioWare and Pandemic Studios, the studios responsible for games like Baldur’s Gate, Mercenaries, Jade Empire, Destroy All Humans, Star Wars: Knights of the Old Republic and Star Wars: Battlefront. The leading third party publisher will pay $620 million in cash plus up to $240 million in equity, outstanding stock options and funding of the acquisition.

Currently, both BioWare and Pandemic are owned by Elevation Partners (the investment firm best known for the involvement of U2 singer Bono) by way of VG Holding Corp. Electronic Arts plans to complete the acquisition of VG Holding Corp. in January. The acquisition is expected to close in January, subject to the usual conditions in such transactions. It will also mean that Elevation Partners has approximately doubled its significant investment in two years.

Together, BioWare and Pandemic have around 800 employees in four studios. It’s not clear if there will be any lay-offs, although all the studios are expected to be grouped under the EA Games division. EA also expects to pay as much as $155 million in stock to certain key employees of the developers, subject to certain conditions (such as requiring the studios to meet performance targets or requiring employees to stay with the company for a certain length of time). EA will also provide up to $35 million to finance the companies’ operations until the acquisition (presumably to be repaid from the proceeds of the sale). EA will also assume $50 million in outstanding VG Holding Corp. stock options.

In the short term, this will negatively impact EA’s financial results because of the large cash outlay. However, John Riccitiello (EA’s Chief Executive Officer) says, “We expect this will drive long-term value for our shareholders.” That seems like a good bet, given the popularity of BioWare and Pandemic games. Both studios have ten franchises under development, many of which are based on franchises they own and created. EA believes that the two studios will generate in excess of $300 million in revenues per year starting in EA’s 2009 fiscal year. That number is expected to increase when BioWare launches its unannounced massively multiplayer online game (probably in EA’s 2010 fiscal year).

Prior to joining EA, Riccitiello was a founder and Managing Director of Elevation Partners, and stands to profit from the transaction as a result of his previous work with Elevation Partners.

One question this acquisition raises concerns platforms. Pandemic’s games have been seen on most platforms, but BioWare’s games have often had a close relationship with Microsoft. For example, Microsoft is publishing Mass Effect next month, and many of BioWare’s games have been for the PC and Xbox platforms. Will this mean that Sony fans get to see more of BioWare’s story-driven games?