SAN FRANCISCO (Reuters) - Electronic Arts Inc ERTS.O extended its offer for Take-Two Interactive Software Inc (TTWO.O) on Friday after winning over just 8 percent of shareholders ahead of the launch of Take-Two’s “Grand Theft Auto 4.”
Electronic Arts said its extension of the $2 billion offer to May 16 was due to a request from the U.S. Federal Trade Commission for more information about the proposed buyout, although Take-Two said the 8 percent support underscored shareholder displeasure with the bid.
Take-Two has rejected EA’s offer as too low, saying it undervalues “Grand Theft Auto 4,” a violent game widely expected to be the best-selling title of the year.
By extending the offer, which expired on Friday, without raising it, EA may be signaling its belief that even blockbuster sales of the new game after its April 29 release won’t drive the stock higher.
“They are playing hardball,” Kaufman Bros analyst Todd Mitchell said of EA, adding that the $25.74-per-share bid could rise by a dollar or two at most. “They will not do a deal that is not accretive to fiscal 2010. They cannot overbid for this. EA has a very strong revenue story but a weak earnings story.”
EA shares rose 55 cents, or 1.1 percent, to close at $52.01, while Take-Two shares added 13 cents to $25.98, compared with the Nasdaq's .IXIC 2.6 percent rise.
“The minuscule number of shares tendered, as well as the strong vote in favor of the proposals presented at our annual meeting, offer indisputable evidence that our stockholders regard our efforts to enhance Take-Two’s stockholder value as superior to the EA offer,” Take-Two Chairman Strauss Zelnick said in a statement.
Arbitrage traders collectively hold a vast amount of stock, and some said they were waiting for a higher bid, focusing on “Grand Theft Auto.”
“GT is a great franchise, people love the gore and the shadiness to it,” said one, who declined to be named. “The likelihood of success is quite high. Shares will rise. And then there will be more negotiations. We expect an increase in the offer. We expect to make good money.”
A second arb expected a full-out proxy battle to take over the board, while admitting EA was unlikely to face a rival bidder.
“There really isn’t anyone out there. Disney doesn’t want some crack addict running around in a stolen car -- it’s just not their image. So there aren’t many potential buyers. But another bidder would be the ideal scenario,” the person said.
EA said only about 8.3 percent of Take-Two shares had been tendered as of Thursday afternoon.
“We’ve extended it because of a second request from the FTC, but we continue to believe that the offer is full and fair,” Owen Mahoney, EA’s senior vice president of business development, told Reuters.
“Any further delays, whether regulatory or intransigence by Take-Two management, is going to affect the value and certainty of the offer,” Mahoney said.
Arvind Bhatia, director of equity research for Sterne Agee, said EA could afford to bide its time.
“Right now raising the bid wouldn’t make any difference. If they raise the bid and don’t get FTC approval, it’s a moot point,” Bhatia said.
Mahoney declined to say what the focus of the FTC inquiry was, but legal experts have expressed concern that the deal would give EA too much dominance in sports video games.
The deal would add Take-Two’s NBA basketball and MLB baseball titles to EA’s sports lineup, which already includes “Madden” football, “FIFA” soccer and “NASCAR” games.
EA wants “Grand Theft Auto” and other games like “BioShock” and “Civilization” to boost its own line-up and meet the threat posed by rival Activision Inc (ATVI.O), which is merging with the games unit of Vivendi (VIV.PA) to challenge EA for the title of biggest publisher.
EA followed through on its promise to cut the price of its bid by 26 cents to $25.74 a share, to account for additional shares to be issued following Take-Two stockholder approval of an incentive stock plan at an annual meeting on Thursday.
The total value of the deal is unchanged at $2 billion.
(Additional reporting by Jui Chakravorty Das in New York)
Editing by Mark Porter/Gary Hill/Braden Reddall