Analyst anticipates higher bid in Electronic Arts hostile takeover of Take-Two Interactive

By Paul A. Harris

St. Louis, June 12 - In its attempt to scrutinize the attempted $25.74 per share hostile takeover of Take-Two Interactive Software Inc. by Electronic Arts Inc., the Federal Trade Commission has found Take-Two's efforts to provide information to be somewhat lackluster, according to a special situations equities analyst.

The FTC has set a June 24 hearing to provide Take-Two with an opportunity to explain why it has not complied with the commission's request, the source continued, adding that the FTC's lead counsel described discussions with Take-Two as having been unhelpful.

On Thursday an equities analyst who covers the electronic games sector said that the deal is unlikely to happen at the current $25.74 merger price.

However, the analyst added, Electronic Arts is nevertheless going about the process of clearing legal approvals for the deal.

"Once they sense that there are no problems, and that it would be a smooth, quick transaction, then they would be in a position to up their offer, whether it would be by two or four dollars," the analyst said.

"At that point I would expect Take-Two to accept the offer."

A complex situation

The electronic games analyst said that one new and interesting twist in the Electronic Arts/Take-Two story stems from a recent report of a competing bid for Take-Two by French electronic game firm Ubisoft Entertainment.

Should that scenario play out, the analyst added, the industry would basically have three mega-operators: Electronic Arts, the largest, Activision Blizzard, the entity to be formed from the merger of Activision, Inc. and Vivendi Games, set to close on July 8, and the Ubisoft/Take-Two combination.

"The ironic thing about it is that Electronic Arts is an admirer of Ubisoft, and actually owns about 20% of Ubisoft," the analyst said, conceding that the situation is complex to say the least.

Take-Two's pile of cash

In the course of the parrying which has taken place between Electronic Arts and Take-Two, beginning in late February of this year, Electronic Arts CEO, John Riccitiello, asserted that it was important "to close the transaction relatively quickly in order to realize the synergies and to allow EA's strong global publishing organization to positively impact the catalog of Grand Theft Auto IV and other titles launching ahead of the holiday season."

As it happens the April 29, launch of the fourth edition of that fabled video game came and went with the merger unfinalized.

According to one market source, the release of the game earned the company a second-quarter profit of $98.2 million.

The electronic games equities analyst said that notwithstanding Electronic Arts' expressed desires to get the deal done ahead of the late April release, Electronic Arts will still derive considerable benefit if it succeeds in completing the merger.

"Grand Theft Auto is making a lot of money," the analyst said.

"That will soon turn into a big cash pileup for Take-Two. And if Electronic Arts is able to acquire Take-Two that cash is theirs.

"I don't sense that there ever really was any urgency."

In Thursday trading shares of Take-Two (Nasdaq: TTWO) lost 0.71%, or $0.19, closing at $26.56.

Electronic Arts (Nasdaq: ERTS) shares lost 0.17%, or $0.08, and closed at $45.99.

Shares of Ubisoft (NYSE Euronext: UBI) closed the day at €55.51, down 3.82%.

Meanwhile Activision (Nasdaq: ATVI) saw its shares rise 2.05%, or $0.68, to end at $33.88.

Hail the King of Beers

Belgian brewer, InBev NV's unsolicited $65 per share bid for Anheuser-Busch Cos. Inc., the last of the large-scale American brewers, faces some political headwinds, according to a special situations equities analyst.

Missouri Governor Matt Blunt finds the offer "troubling", and has asked the state's Department of Economic Development to examine ways to maintain Anheuser-Busch's independence.

Jeff Rainford, chief of staff for St. Louis' mayor Francis G. Slay, told the St. Louis Post-Dispatch "We're certainly not going to go quietly," as city officials are drafting a letter to local shareholders imploring them to weigh the local economic impact of the takeover.

An analyst in the beverage sector reiterated Anheuser-Busch's Wednesday statement, that its board will "pursue the course of action that is in the best interests of Anheuser-Busch's stockholders," and added that given the historical performance of Anheuser-Busch's shares (NYSE: BUD), it is difficult to see how the company makes it to $65.00 (InBev's bid) on its own.

In the first full day of trading following InBev's unsolicited offer, Anheuser-Busch shares shot up 5.23%, or $3.05, to close at $61.40.

InBev (EBR: INB) shares gained 6.17%, or €2.92, to close at €50.21.

Elsewhere in the brewing sector shares of Molson Coors Brewing Co. (NYSE: TAP) gained 2.38%, or $1.35, to close at $57.97.

Invitrogen to acquire Applied Biosystems

In another situation which surfaced on Thursday, Invitrogen Corp. announced that it will acquire all of the outstanding shares of Applera Corp.'s Applied Biosystems Group in a cash and stock transaction valued at $6.7 billion.

Under the terms of the merger agreement, Applera-Applied Biosystems shareholders will receive $38.00 for each share of Applera-Applied Biosystems stock they own, with payment coming in the form of Invitrogen common stock and cash.

The expected split between cash and stock is 45% and 55%, respectively. Applera-Applied Biosystems shareholders will receive a value of $38.00 a share if the 20 day volume-weighted average price of Invitrogen common stock is in the range of $43.69 to $46.00 three business days prior to the close of the transaction.

The total value per share will differ if Invitrogen's 20 day volume-weighted average price is above or below that range, measured shortly prior to the close of the transaction. The consideration represents a premium of 17% to Applied Biosystems's closing price on June 11, or 12% to Applied Biosystems's average closing price in the last 30 trading days. Applera-Applied Biosystems shareholders also will have the option to request all cash or all stock, subject to possible proration.

Upon completion of the transaction, Invitrogen shareholders will own the majority of the company.

Invitrogen will use cash on hand and proceeds from a fully underwritten debt financing from Bank of America, UBS Investment Bank and Morgan Stanley to fund the cash portion of the deal. The combined company expects to generate strong operating cash flow and rapidly pay down debt.

Following the news Applied Biosystems (NYSE: ABI) shares advances 5.3%, or $1.72, and closed at $34.16.

However Invitrogen (Nasdaq: IVGN) shares fell 10.66%, or $4.62, to close at $38.73.

Thursday's situations took place against the backdrop of a modest rally in U.S. stock prices.

Among the three major indexes the Dow Jones Industrial Average emerged as Thursday's outperformer, gaining 0.48%, or 57.81 points, to close at 12,141.58.

The Nasdaq went up 0.43% to close at 2,404.35, 10.34 points higher.

The S&P 500 advanced 0.33%, or 4.38 points, and closed at 1,339.87.

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