By Sarah E. Needleman

Two of the videogame industry's largest publishers are grappling to control a U.K.-based studio with a long history in auto-racing games, the latest example of steep competition to amass content amid broader demand for interactive entertainment.

Electronic Arts Inc. said Monday it reached a $1.25 billion deal to acquire Codemasters Group Holdings PLC after the company's board accepted its proposal. Codemasters, which has about 700 employees, had been evaluating an earlier offer from Take-Two Interactive Software Inc.

Electronic Arts, known for its hit franchises such as Battlefield, FIFA and The Sims, said it expects to complete the all-cash transaction in the first quarter of 2021.

In response to Electronic Arts' move, Take-Two said it is considering its position and would make a further statement when appropriate. A spokesman for the Grand Theft Auto publisher Take-Two declined further comment.

Codemasters said Take-Two made its initial acquisition proposal in September, according to a securities filing. Take-Two on Nov. 10 said it reached a deal valued at nearly $1 billion in cash and stock. Codemasters said Electronic Arts made its initial overture after it agreed to Take-Two's proposal and received a purchase offer from the company Thursday.

Codemasters went public in June 2018. Its London-listed shares rose 23% Monday, trading higher than EA's acquisition price. Meanwhile, shares in EA rose 1.2% and Take-Two's stock gained 2.6%.

The videogame industry has been on a tear this year, with the pandemic driving up consumer spending on games and gaming equipment. Deal activity has been increasing in tandem. The sector has had $12.1 billion worth of mergers, acquisitions and buyouts and $2.3 billion of venture investments this year through mid-December, according to PitchBook. That compares with $7.8 billion of deals and $1.7 billion of venture investments for all of 2019.

Codemasters' F1 racing-game franchise complements Electronic Arts' Need for Speed series, said R.W. Baird analyst Colin Sebastian. Need for Speed is made by Criterion Games, a U.K.-based studio that Electronic Arts acquired in 2004. The racing genre also includes Microsoft Corp.'s Forza and Sony Corp.'s Gran Turismo series, among others.

"With Codemasters, EA will clearly be a strong competitor, if not a market leader now in racing," Mr. Sebastian said.

Ian Walker contributed to this report.

Write to Sarah Needleman at Sarah.Needlema@WSJ.com

(END) Dow Jones Newswires

12-14-20 1921ET