Take-Two, Electronic Arts merger talks hinge on video game release

By Lisa Kerner

Charlotte, N.C., Feb. 25 - Take-Two Interactive Software, Inc. turned down an unsolicited proposal from Electronic Arts Inc. to acquire the company for $26 per share, or some $2 billion.

The per-share price is a 64% premium over Take-Two's most recent closing price and a 63% premium over Take-Two's 30-day trailing average price based on prices as of market close on Feb. 15.

Take-Two's board of directors called the cash bid "inadequate in multiple respects," citing Take-Two's "enviable stable" of game franchises, creative talent and strong consumer loyalty.

Electronic Arts initially offered $25 per share but upped the offer after Take-Two said no to that deal on Feb. 15.

Take-Two accused Electronic Arts, in its latest offer, of trying to take advantage of the upcoming release of the Grand Theft Auto IV video game. The Grand Theft Auto game franchise has sold 65 million units to date, according to a company news release.

However, Take-Two has entered into a good-faith dialogue with Electronic Arts that it will continue on April 30, following the release of Grand Theft Auto IV.

Electronic Arts maintained that its publishing and distribution network would "positively impact the ongoing post-launch sales of Grand Theft Auto IV and support the new Take-Two titles scheduled for launch later in the year," an Electronic Arts statement said.

"We believe this offer demonstrated our commitment to pursuing all avenues to maximize stockholder value, while we believe that EA's refusal to entertain this path is evidence of their desire to acquire Take-Two at a significant discount, whereas we believe this value rightly belongs to our stockholders," Zelnick said in a company news release.

According to Electronic Arts, Take-Two is dependent on a limited number of game titles and has limited capital resources.

Although Electronic Arts said it preferred to conduct a private negotiation, it made the offer public in its Feb. 24 news release and letter to Take-Two. The company said a delay in accepting the offer "could prevent Take-Two's shareholders and other constituents from realizing its benefits."

Strauss Zelnick, Take-Two's chairman of the board, said the company is committed to its current strategy and ongoing turnaround efforts.

"In the last year, we have accomplished a great deal in terms of restructuring our cost base to improve margins, addressing the legacy issues that have weighed on our business, and enhancing our creative output through organic and external initiatives," Take-Two chief executive officer Ben Feder added.

The restructuring includes a $25 million cost-cutting plan, consolidating the majority of 2K Games and 2K Sports operations on the West Coast, and the sale of the non-core Joytech business.

In addition, Take-Two has secured a $140 million line of credit and announced a preliminary settlement of the "Hot Coffee" class action.

Electronic Arts, located in Redwood City, Calif., and New York-based Take-Two are interactive entertainment software companies.

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