Electronic Arts ends merger talks with Take Two

SAN FRANCISCO (Reuters) - U.S. video game giant Electronic Arts Inc ERTS.O has pulled away from an offer to buy rival Take Two Interactive Software Inc TTWO.O after pursuing the "Grand Theft Auto" game publisher for more than six months.

"Grand Theft Auto IV" video game boxes are displayed on a rack inside a GameStop store in New York prior to the midnight release of the video game April 28, 2008. REUTERS/Lucas Jackson

On Sunday, EA said it ended private negotiations with Take Two about a potential transaction and had decided to no longer pursue an acquisition.

EA and Take Two entered these private talks last month after EA dropped its hostile bid, worth roughly $2 billion, which the “GTA” publisher had rejected as inadequate.

Take Two lost its luster partly because of EA’s own strengthening position in the video games market, which reduced the potential value of any transaction, EA’s senior vice president for corporate development Owen Mahoney said on Sunday.

“We were very convinced the value of the transaction would decline over time and have come to feel more and more strongly about our own business,” Mahoney said in an interview.

EA, which publishes hit titles like “Madden NFL,” has said it expects new games such as the long-awaited “Spore,” the evolution-inspired game, to drive sales in the 2009 financial year, even as it narrowed its quarterly loss and doubled revenue in July under a turnaround strategy.

EA’s insistence that its $25.74-a-share offer for Take Two was adequate was a likely sticking point during the talks.

“It’s rather straightforward,” said Take Two Chief Executive Strauss Zelnick in an interview, when asked about why the talks fell apart.

“EA has been consistent in their approach regarding value and our shareholders have repeatedly rejected the price they offered. There’s very little else more that meets the eye.”

Zelnick also said the value of Take Two has increased significantly since EA made its offer, given the whopping sales of “GTA 4,” the game’s latest iteration, and quarterly results that beat Wall Street expectations.

EA made its unsolicited, $26-a-share offer for Take Two public in February and later reduced the per-share price to $25.74 and launched a tender offer, which it extended five times.

EA let its tender offer expire on August 18, but shortly thereafter, the two companies announced they had signed a confidentiality agreement and were in private negotiations about a potential deal.

A management presentation by Take Two to EA, in which executives outlined their three-year product plans, was part of the private talks, along with due diligence of the company’s books.

Take Two said on Sunday it remains engaged in discussions with other parties as it seeks strategic alternatives to bring value to shareholders.

Zelnick did not disclose who these parties are, or even their level of interest in Take Two, but said his company was on a strong growth track independently.

Take Two shares closed Friday’s session up 1.1 percent at $21.89 on the Nasdaq, while EA shares closed down 1.25 percent, at $44.99.

Editing by Andre Grenon