Electronic Arts launches hostile offer for Take-Two

SAN FRANCISCO Thu Mar 13, 2008 6:39pm EDT

A screenshot from ''Grand Theft Auto: San Andreas''. Electronic Arts Inc plans to make a $26-a-share tender offer for all outstanding shares of rival video game publisher Take-Two Interactive Software Inc, following its rejection of EA's unsolicited offer at the same price last month, according to a person familiar with the matter. REUTERS/Rockstar Games/Handout

A screenshot from ''Grand Theft Auto: San Andreas''. Electronic Arts Inc plans to make a $26-a-share tender offer for all outstanding shares of rival video game publisher Take-Two Interactive Software Inc, following its rejection of EA's unsolicited offer at the same price last month, according to a person familiar with the matter.

Credit: Reuters/Rockstar Games/Handout

SAN FRANCISCO (Reuters) - Electronic Arts Inc ERTS.O on Thursday launched a hostile offer for rival video game maker Take-Two Interactive Software Inc (TTWO.O) at $26 a share, taking the $2 billion bid directly to stockholders.

Take-Two, publisher of the popular "Grand Theft Auto" -- or "GTA" -- series, last month rejected EA's unsolicited all-cash offer at the same price. The bid represents a 64 percent premium over Take-Two's closing stock price on February 15, the last trading day before EA sent the proposal to the company.

"We believe that the offer we made is compelling. It is a full price and the longer we go on, the less valuable the asset is to us. At least so far, Take-Two's board is indicating they don't want to negotiate," EA Chief Executive John Riccitiello told Reuters in an interview.

Take-Two responded with a statement advising shareholders to take no action for now on EA's offer. Take-Two executives have argued that EA is trying to buy the company on the cheap just before the April 29 launch of "GTA 4," widely expected to be one of the best-selling games of 2008.

"While today's news means EA is moving forward with its offer, an acquisition by EA is by no means a certainty," Chairman Strauss Zelnick and Chief Executive Ben Feder wrote in a company-wide e-mail that was also filed with regulators.

Take-Two added that its board would review the offer and tell shareholders of its position within 10 business days.

This week, Take-Two, which also makes games like "Bioshock" and "Major League Baseball 2K," forecast quarterly earnings above Wall Street estimates, saying advance orders for "GTA 4" were better than expected.

Analysts said Take-Two shareholders might warm to EA's bid, and that a number of recent buyers may be risk arbitrageurs.

"EA has a pretty good chance of acquiring Take-Two at $26. They are going after Take-Two at their original price because they feel like they are in the driver's seat and no other bidders have emerged," said Sterne Agee analyst Arvind Bhatia.

One arbitrage trader who specializes in takeovers said investors had to weigh the certainty of cash now against hopes that the shares would rise in a shaky economic environment.

"There's always the chance of another bid, but Take-Two should conduct a rigorous auction to prove to shareholders what they can get," said the trader, who asked not to be identified.

REDUCED STAKES

Earlier this week, Take-Two's two biggest shareholders disclosed that they had drastically cut their stakes, potentially undermining management's stance that the buyout offer was too low.

Mutual fund company Oppenheimer Funds, Take-Two's biggest shareholder, halved its holdings to 8.8 million shares, reducing its stake to 11.5 percent from 23 percent, according to U.S. regulatory filings.

FMR LLC, the parent company for the Fidelity mutual funds and once the second-largest owner of Take-Two shares, slashed its stake to 2.75 percent from 14.7 percent.

Zelnick said earlier in the week that the big stock sales did not cause executives to reconsider their rejection of EA's offer and the trades indicated new shareholders expected the stock to rise above $26.

Asked about that view, EA's Riccitiello said: "I knew a couple weeks ago that a number of shareholders were steadfast in their view that the offer needed to be above $26, but some of them have already sold at that. Now it's held by new people, and at the right moment they will consider our offer."

Take-Two shares rose 2.9 percent to close at $25.64 on Nasdaq, but were still below a high of $27.61 set on February 28, shortly after EA announced its offer.

EA stock inched up 3 cents to close at $47.26. Its tender offer, through a wholly owned subsidiary, will expire at midnight on April 11, but could be extended. Take-Two's annual meeting is scheduled for April 10.

Morgan Stanley & Co Inc is dealer manager for the tender offer, for which Georgeson Inc is information agent.

(Additional reporting by Jessica Hall in Philadelphia, Franklin Paul in New York and Peter Henderson in Los Angeles; Editing by Derek Caney, Tim Dobbyn, Richard Chang)