Video Game Firm EA Bids $2 Billion for Take-Two

By Nancy Kercheval and Eric Martin
Bloomberg News
Monday, February 25, 2008

Electronic Arts offered to buy Take-Two Interactive Software for $2 billion in cash to help maintain its lead as the world's largest video game maker and acquire the top-selling "Grand Theft Auto" series.

Take-Two's board rejected the offer of $26 a share on Friday, prompting Electronic Arts to take its bid directly to investors. The offer by the Redwood City, Calif.-based company is 64 percent higher than the $15.83 closing price on Feb. 15, the last day of trading before it was made.

"There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today," EA chief executive John Riccitiello said in a Feb. 19 letter to Take-Two Chairman Strauss Zelnick that was made public yesterday.

Zelnick said in an interview that the offer undervalues New York-based Take-Two and that he's willing to talk to EA after releasing the fourth "Grand Theft Auto" at the end of April. EA, maker of "Need for Speed" racing and "Madden" football games, is looking for more hit titles as it stands to lose its spot as the biggest gamemaker when Vivendi combines its games unit with Activision.

EA has fallen 15 percent this year and gained 79 cents to $49.74 in Nasdaq trading Friday. Take-Two, down 5.9 percent in 2008, climbed 35 cents to $17.36 on Friday.

Wedbush Morgan Securities analyst Michael Pachter said Electronic Arts was "somewhat foolish" for offering $26 a share. He rates the company a "strong buy."

"The price is more than fair," said Pachter, who had a "sell" rating on Take-Two shares prior to the offer announcement. "EA is really stretching the limits of the value they can get out of the deal. I'm quite confused why Take-Two would reject it. I don't see anybody else stepping up."

Combined, the companies had about $4 billion in 2007 sales, compared with around $3 billion for Activision and Vivendi's games unit. Vivendi said in December that it will contribute its $8.1 billion video game business and pay $1.7 billion in cash for a 52 percent stake in the combined company.

The gamemakers are trying to capture a bigger slice of an expanding market. The global video game industry will grow an average of 9.1 percent annually to $48.9 billion in 2011, according to a June 2007 report by PricewaterhouseCoopers. That's faster than the 6.4 percent growth rate for the overall entertainment industry, the report said.

"The company is still in the midst of rebuilding in a growth industry, and we have the biggest release in the industry coming," Zelnick said. "EA has been clear about its growth appetite."

Take-Two hasn't reported an annual profit since 2005 and has been without a hit since postponing the scheduled October release of "Grand Theft Auto IV." Sales have been hurt by the delay and by concerns over violent content in its "Manhunt 2" game released last year. That title was banned in Britain and Target pulled it from stores in November.

EA, which approached Take-Two in December, wanted to complete an acquisition after the release of "Grand Theft Auto IV" and before the end of the summer to capture the fall and Christmas buying season, Riccitiello said.


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