(Adds analyst quotes, closing stock price)
By Anupreeta Das
SAN FRANCISCO Feb 25 U.S. video game giant
Electronic Arts Inc's ERTS.O bid to buy Take-Two Interactive
Software Inc (TTWO.O) for $1.9 billion undervalues the company,
and shareholders are unlikely to sell at that price, an
investor who owns about 5 percent of Take-Two said on Monday.
"We see Take-Two valued at around $33 a share," said Wiley
Reed, a portfolio manager at Denver Investment Advisors LLC.
EA's bid is for $26 a share.
Reed also said he expects Electronic Arts to raise its
offer before the April 29 release of Take-Two's blockbuster
game "Grand Theft Auto 4."
"This deal is going to be super-accretive to EA ... and we
definitely think EA can pay up a bit more here," said Reed.
"We're looking for a 33-type number."
EA made its unsolicited all-cash $1.9 billion offer public
on Sunday. Take-Two rejected the offer as "inadequate" and
accused EA of trying to scoop up a company in turnaround just
before the publication of "Grand Theft Auto 4."
Shares of Take-Two closed up nearly 55 percent at $26.89 on
the Nasdaq on Monday, indicating that investors expect EA or
another bidder to make a higher offer. Meanwhile, Electronic
Arts shares fell 5.2 percent to close at $47.14.
Analysts said a combination of the two makes strategic
sense, and expect the deal to go through at a higher offer.
"Given the strategic sense of the combination and the
compelling potential for the deal to be accretive to ERTS
(Electronic Arts) shareholders at a higher price, we believe
there is a good chance this deal could get done at a higher
price," Cowen and Company analyst Doug Creutz said in a note to
But analysts didn't think Take-Two could get too much
Citigroup analyst Brent Thill said he thought EA's offer
was fair, and that the company may be willing to pay "slightly,
but not materially higher" than its current offer.
BMO Capital Markets analyst Edward Williams told Reuters
Television a negotiation might push EA to raise its $26-a-share
offer, but a "material" increase -- one 25 percent or more
above the current offer -- is unlikely.
Wedbush Morgan analyst Michael Pachter said the offer was
"more than adequate" since Take-Two had failed to turn a profit
in more than two years and its turnaround efforts had not yet
"We believe that EA's offer is significantly higher than
the amount that would be paid by a major media company,"
Pachter wrote. "Other prospective bidders are simply not in the
same position to value Take-Two as is EA."
Stubbornness on Take-Two's part could backfire since EA has
made clear that any delay in capturing the profits from "Grand
Theft Auto 4" makes Take-Two less valuable in its eyes.
"If Take-Two does not come to the negotiating table with
Electronic Arts and you get more of a hostile environment to
try to take over the company, I think if anything your bid is
26 or lower rather than 26 or higher, and that's where they
would just try and tender for shares at whatever price it would
be," Williams said.
In his offer letter, EA's chief executive, John
Riccitiello, warned that other potential bidders are unlikely
to pay as much for Take-Two, and a delay in accepting the
proposal could withhold benefits from shareholders.
"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. Some analysts interpreted that to
mean that EA could walk away if Take-Two dithers.
But Take-Two shares could touch $33 even if EA walks away
from the offer, Denver Investment's Reed said.
"We think GTA 4 (Grand Theft Auto 4) is going to show how
powerful this brand is. The stock, on fundamental earnings
power, will propel Take-Two to $33 even if Arts doesn't buy
it," he said.
(Additional reporing by Scott Hillis)
(Editing by Jeffrey Benkoe, Gunna Dickson, Gary Hill)