EA raises the ante for rival
Electronic Arts Inc. on Sunday launched a $2-billion takeover bid for troubled video game publisher Take-Two Interactive Software Inc., stepping up the industry’s torrid pace of consolidation.
EA disclosed that Take-Two, the New York-based publisher of the “Grand Theft Auto” series, had recently rejected two all-cash buyout offers. EA, the world’s largest game publisher, made the higher bid public Sunday and said it would bring the offer directly to Take-Two’s shareholders.
The offer of $26 a share for Take-Two represents a nearly 50% premium over Friday’s closing price and a 64% premium over the closing price when it was made Feb. 19.
Take-Two Executive Chairman Strauss Zelnick called the deal “insufficient” and said his company would be willing to discuss a deal only after the release of “Grand Theft Auto IV,” scheduled for April 29.
The move follows a series of high-profile mergers in the game industry. Flush with cash from record sales, publishers are seeking both cost savings and a broad portfolio of franchises to protect themselves from flops in the increasingly hit-driven industry.
Santa Monica-based Activision Inc. is set to close a merger with Vivendi’s game business this year. The combined company, Activision Blizzard, is expected to have market value of $18.1 billion.
Redwood City, Calif.-based EA in October agreed to pay as much as $775 million in cash and stock to acquire two game developers, Pandemic Studios and BioWare Corp.
The bold Take-Two bid is part of EA Chief Executive John Riccitiello’s plan to overhaul his company, whose popular series include “Madden Football,” “The Sims” and “Need for Speed.”
“There’s no other company in a position to make a similar offer, which means the deal is very likely going to happen,” said Michael Pachter, an analyst with Wedbush Morgan Securities.
Riccitiello, who assumed the helm of EA almost exactly a year ago, vowed to shake up the publisher, which had been losing market share to rivals such as Activision. He tore down the company’s centralized development style and created more independent labels that focus on specific genres, similar to the music industry. And he has moved quickly to fill gaps in EA’s game portfolio, such as the role-playing games for which BioWare is known.
Buying Take-Two would provide EA with a genre known as “open world action,” in which players have fewer set paths within the game and more freedom to choose what their characters do. It also would give EA control over Take-Two’s 2K Sports label, EA’s only significant rival in the highly lucrative sports game category. “That alone justifies the deal,” Pachter said.
EA had initially offered $25 a share. After being rebuffed, Riccitiello hiked his offer to $26, saying that EA was unlikely to further increase its price.
“There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today,” Riccitiello wrote in a Feb. 19 letter to Take-Two’s Zelnick.
Riccitiello indicated his desire to cinch a deal shortly after the release of “Grand Theft Auto IV,” the latest title in Take-Two’s billion-dollar franchise, so that EA could “positively impact the catalogue sales of GTA IV and also the launch and sale of titles released later this year.”
Zelnick said his company proposed talks after April 29 to avoid disrupting the release of the latest addition to the company’s most important franchise.
“They rejected that,” he said. “I find it sort of stunning from a company that’s presenting itself as a friend of creativity.”
Take-Two’s shares have slumped 12% over the last year, closing at $17.36 on Friday. In August the company announced a significant delay in “Grand Theft Auto IV,” which had been expected before the crucial holiday shopping season.
The delay was a setback for the management team that commandeered Take-Two in a boardroom coup last March after a series of executive scandals and poor financial performance at the company enraged investors.
A consortium of shareholders that together controlled 46% of Take-Two’s stock ousted the company’s board and top management and installed its own team, including Ben Feder as chief executive and Zelnick as nonexecutive chairman. Zelnick was named executive chairman Feb. 15.
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Comparing the players in the field
Electronics Arts Inc.
Popular franchises: “Madden Football,” “The Sims” and “Need for Speed”
Market value: $15.8 billion
2007 revenue (fiscal year ended March 31): $3.1 billion
2007 net income: $76 million
Headquarters: Redwood City, Calif.
Take-Two Interactive Software Inc.
Top franchises: “Grand Theft Auto,” “BioShock,” “Major League Baseball 2K8"
Market value: $1.3 billion
2007 revenue (fiscal year ended Oct. 31): $982 million
2007 net loss: $138.4 million
Headquarters: New York
Source: Times research
Los Angeles Times