(Adds executive comments, Take-Two response, byline)
By Scott Hillis
SAN FRANCISCO Feb 24 (Reuters) - U.S. video game publisher Electronic Arts Inc ERTS.O said on Sunday it wants to buy rival Take-Two Interactive Software Inc, best known for its "Grand Theft Auto" title, for about $2.0 billion in cash.
The $26-per-share offer by Electronic Arts, publisher of blockbuster games like "Madden" and "Need for Speed," represents a 50 percent premium to Take Two's (TTWO.O) Friday closing stock price of $17.36.
The offer follows months of speculation that Take-Two would be acquired by a major games publisher or media publisher. Take-Two rejected EA's offer, calling it "inadequate," and valued the company at a "significant discount" to peers.
Were it to be consummated, it would be the most significant video game company deal since Activision Inc (ATVI.O) said in November it would merge with the games unit of French media and telecoms giant Vivendi (VIV.PA) in an $18 billion agreement to challenge EA's long-standing dominance in the fast-growing industry.
A key question would be whether EA could retain Rockstar, the development studio behind the "Grand Theft Auto" franchise, said Michael Pachter, an analyst with Wedbush Morgan.
"Of the video game companies that could manage Take-Two's assets, EA could do it," Pachter said.
"But the Rockstar guys are not the classic kind of studio that fits into the EA fold," Pachter said. "It seems like an awful lot to pay for 'GTA' with no guarantee that the team sticks around and is not a great cultural fit."
Take-Two Executive Chairman Strauss Zelnick said in a statement that the board decided it would defer any discussions of a takeover until immediately after the release of "Grand Theft Auto IV," slated for April 29.
EA said it made the $26-per-share proposal after an earlier offer at $25 was rejected by Take-Two.
EA said that the rejection of the EA proposal by Take-Two's board prompted EA to release the letter and bring its proposal to the attention of all Take-Two shareholders.
"We believe our offer represents a unique and compelling opportunity for Take-Two shareholders to maximize the value of their investment in the company, with materially lower risk than if Take-Two proceeds on a stand-alone basis," Riccitiello wrote in his letter to Zelnick.
A former EA executive who ran private equity firm Elevation Partners, Riccitiello returned as EA's CEO last April.
In an interview, EA Chief Financial Officer Warren Jenson said the company hoped to clinch a deal quickly for Take-Two, but would keep its options open for a possible hostile bid. He added that the purchase would add to earnings at least by its 2010 fiscal year if it can close the transaction by the year-end holidays.
"Our objective is to make this (a) friendly deal, but we have to keep all options open," Jenson said when asked it EA would consider a hostile bid for Take-Two.
Riccitiello has tried to revitalize the company by reorganizing it into four divisions, or labels, and in October engineered the purchase of two top independent game studios, Bioware and Pandemic, in a deal worth up to $860 million.
In an apparent gesture to head off concerns about a cultural mismatch, Riccitiello also highlighted EA's new label structure, saying it was designed to give creative teams more flexibility.
"I know we both agree that Take-Two's talented creative teams deserve a permanent home within a stable and growing publisher that provides these teams an environment to do what they do best -- create great games," Riccitiello wrote.
Shares of EA rose 79 cents, or 1.6 percent, to close at $49.74 on Nasdaq on Friday.
EA had $3.4 billion in cash and short-term investments at the end of December. (Additional reporting by Duncan Martell) (Editing by Gunna Dickson)