UPDATE 2-DEALTALK-Icahn stake raises chance of Take-Two buyout
* Icahn says game publisher's shares undervalued
* EA, media companies possible suitors - analysts
* Take-Two has struggled to right itself (Re-leads, adds details on 2007 management ouster)
SAN FRANCISCO, Dec 18 (Reuters) - Carl Icahn's newly disclosed stake in Take-Two Interactive Software Inc (TTWO.O) has reignited buyout speculation about a company that boasts a huge game franchise but has been plagued by cost over-runs and launch delays.
Take-Two's shares surged Friday after the activist investor reported an 11.3 percent holding in the "Grand Theft Auto" publisher, which has long been a subject of takeover rumors.
Analysts say Icahn has taken significant positions in Take-Two a few times in previous years, but said his latest move is likely a sign that he plans to be more involved. The money-losing company's shares have underperformed as the company has grappled with game delays and cost overruns.
Options include an outright sale of a company with some of the gaming world's most recognizable brands, or a divestment of assets such as its sports division.
Icahn has a long history of agitating for change -- or a sale -- in companies in which he has invested, including Yahoo Inc (YHOO.O), Time Warner Inc (TWX.N) and Imclone Systems.
Wedbush Morgan analyst Michael Pachter said Icahn may force Take-Two to sell itself. He noted that Icahn has a history with Strauss Zelnick, the game publisher's chairman, whom Icahn nominated to the board of Blockbuster Inc BBI.N in 2005.
"I don't think as an activist he wants to run a company, I think it's much more logical that he would sell the company," Pachter said.
Pachter believes Take-Two has an obvious suitor in Electronic Arts Inc ERTS.O, which unsuccessfully pursued a $2 billion bid for the company last year. EA had offered $25.74 a share for Take-Two, whose shares are now trading at $9.05, giving it a market capitalization of less than $750 million.
EA did not respond to a request for comment.
ThinkEquity analyst Atul Bagga said media giants such as Time Warner Inc (TWX.N) and Viacom Inc VIAb.N might be interested in buying Take-Two to strengthen their hands in video games.
But other industry watchers said big media companies including Walt Disney Co (DIS.N) and News Corp (NWSA.O) would likely be scared off by Take-Two's structural problems.
"If the end game is to sell the company, I don't think that's the right approach because I don't know who the buyer would be at this point," said MKM Partners analyst Eric Handler. "They'd be dilutive to major media companies ... these guys lose money on a GAAP reporting basis."
In a filing Thursday with the U.S. Securities and Exchange Commission, Icahn and his affiliated funds called Take-Two's shares "undervalued," and said they may seek "conversations with Take-Two representatives. [ID:nN17188836]
Icahn did not respond to a request for comment.
The 9.2 million-share stake reported by Icahn makes him the company's second-largest shareholder, according to Thomson Reuters data.
Janco Partners analyst Mike Hickey said that although Take-Two's management teams have had difficulty ironing out a successful operating model, the company has some of the gaming world's most recognizable brands in "Grand Theft Auto," "BioShock" and "Midnight Club."
He said that with a push from Icahn, Take-Two could look to sell off some assets, such as its sports game business.
"There's the opportunity to unlock some significant value, they could look at the pieces of the business," Hickey said.
Icahn's move comes nearly three years after another group of dissident investors ousted Take-Two's previous management and appointed Zelnick chairman.
The new management at the time pledged to shed the troubled video game maker's unprofitable assets and clean up messes left by previous executives, such as a U.S. Securities & Exchange Commission probe into its accounting practices.
Take Two's stock is down more than 50 percent since Zelnick arrived. The company has sought to lessen its dependence on "Grand Theft Auto" but has delayed games, racked up high development costs and seen poor sales for some titles.
But Take-Two expects to report a second consecutive annual net loss in fiscal 2010.
Shares of New York-based Take-Two rose nearly 10 percent to $9.05 on Nasdaq.