UPDATE 1-Viacom not in talks to buy Take-Two -source

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NEW YORK/SAN FRANCISCO, Feb 7 (Reuters) - Media conglomerate Viacom Inc VIAb.N is not in talks to buy video game maker Take-Two Interactive Software Inc TTWO.O, a source familiar with the matter said on Thursday, disputing reports of an offer.

Reports on the Web and a video games trade publication Web site said Viacom had offered $1.5 billion for the maker of the popular “Grand Theft Auto” games franchise, citing unnamed sources.

Shares of Take-Two rose as much as 12 percent on Thursday on the rumor.

Viacom declined to comment. A Take-Two representative said the company does not comment on rumors.

“This is very unlikely,” Pacific Crest Securities analyst Evan Wilson said of the speculation. “Video games are a hot space and media companies are interested in participating in the growth, but for Viacom, they are pursuing a completely separate strategy.”

Viacom was seen as an obvious target for speculation as the company and its founder have invested in the games sector.

Viacom, owner of MTV Networks and movie studio Paramount, last year earmarked $500 million to invest in video games. MTV’s $175 million purchase of Harmonix, maker of music video game “Guitar Hero”, has begun to pay off as Harmonix-developed “Rock Band” was a holiday shopping season hit.

But Viacom Chief Executive Philippe Dauman has said on several occasions recently that the company had no appetite for high-priced acquisitions, preferring smaller purchases or developing products and services internally.

“I don’t think any of those media companies has the appetite to get into a new business,” said Michael Pachter, an analyst with Wedbush Morgan.

Viacom founder and Executive Chairman Sumner Redstone separately holds a majority stake in game publisher Midway Games Inc MWY.N.

Take-Two shares were up 52 cents, or 3.3 percent, at $16.12 on the Nasdaq after briefing entering negative territory. (Additional reporting by Doris Frankel in Chicago; editing by Jeffrey Benkoe and Braden Reddall)