UPDATE 4-Take-Two urges investors to reject EA bid, mulls sale

(Adds response from Electronic Arts)

By Michele Gershberg

NEW YORK, March 26 (Reuters) - Take-Two Interactive Software Inc (TTWO.O: Quote, Profile, Research) told shareholders on Wednesday to reject a $2 billion hostile bid from rival video game publisher Electronic Arts Inc (ERTS.O: Quote, Profile, Research) as too low, but said it had begun to explore a sale or other options.

Take-Two said it was still open to a combination with EA or another company, but not before the April 29 release of its "Grand Theft Auto 4" title, widely expected to be the best- selling video game this year.

EA responded by saying its offer was "full and fair" and reflected the value of its game franchises, employees and improving operations.

"By advising its stockholders to reject the offer, Take- Two's Board is exposing them to further delays which may reduce the value and the certainty of a potential transaction," EA said in a statement.

Take-Two shares were down 1 cent at $25.81 and EA shares fell 1.5 percent to $49.40 in late afternoon trading on the Nasdaq.

Take-Two said its board had begun considering strategic alternatives and preparing materials any potential buyer would need to conduct due diligence. It said it has seen indications of interest from other companies since EA made its $26-per- share offer, but has not held any substantive talks.

"We're starting now to be in a position to have discussions on April 30," Chairman Strauss Zelnick told Reuters in an interview. "We think that's the best way to address not only EA's interest, not only other third-party interest, but that we've deeply considered the option of staying independent."