Publisher preparing 'Grand Theft Auto IV'

Electronic Arts is going public with a $2 billion offer for Take-Two Interactive that the “Grand Theft Auto” publisher’s board has rejected.

EA made its second bid for the company at $26 per share last Tuesday, an increase from a $25 per share bid that was rejected earlier in the month. After Take-Two executive chairman Strauss Zelnick rejected the second offer on Friday, EA decided to present its proposal to shareholders on Sunday.

Deal would combine EA, which remains the world’s No. 1 vidgame publisher but has recently been losing ground, with midsized publisher Take-Two, which relies primarily on subsidiary Rockstar’s Take Two but also has a solid sports games business and several successful new franchises including “Bioshock” and “Carnival Games.”

EA’s offer comes amid a period of consolidation in the fast-growing vidgame biz: Activision is preparing to combine with Vivendi’s vidgame unit, owner of the ultrasuccesful “World of Warcraft.” Merged entity, to be be called Activision Blizzard, would be valued at $18.9 billion. Based on their current capitalizations, EA and Take-Two would have a combined worth of just over $17 billion.

Take-Two is preparing to release the hugely anticipated “Grand Theft Auto IV” in late April. EA is apparently attempting to get an offer accepted before the game comes out, but Zelnick said Take-Two will only start engaging in negotiations on April 30, the day after “GTA IV” comes out.

The two companies are at odds over whether Take-Two has any valuable properties outside of “GTA” and whether Zelnick and CEO Ben Feder’s attempts to turn around the company following an accounting scandal last year have succeeded.

“While the videogame industry remains an attractive, high-growth business, the challenges and risks in the business are escalating, and the need for scale is becoming more pronounced,” EA CEO John Riccitiello wrote to Zelnick on Feb. 19. “Despite steps taken since March 2007 (when Zelnick and Feder took over), Take-Two remains dependent on a limited number of titles, and has limited capital resources. In addition, Take-Two faces ongoing financial, legal and operating issues and a very intense competitive environment.”

In a statement Sunday, Zelnick vehemently disagreed.

“In additional to undervaluing key elements of our business, EA’s proposal fails to recognize the value we are building through our ongoing turnaround efforts, which will further revitalize Take-Two,” he said. “While we have made substantial progress already, the turnaround of our business we commenced in June is not yet compete and we believe its benefits have not been recognized in either our current stock price or in the value of EA’s proposal.”

Offer represents a 64% premium over Take-Two’s closing price on Feb. 15, the last trading day before it was sent, and a 50% premium over its closing price on Friday .

Last year, EA acquired developers Bioware and Pandemic for $860 million, bringing in new creative talent and franchises like “Mass Effect” and “Mercenaries.” Acquisition of Take-Two would bring the same benefits and also let it kill or merge the smaller publisher’s sports unit, which is the biggest competitor to EA’s sports games.

As one of the few independent publishers with valuable franchises, Take-Two could likely find other possible suitors.

In his letter to Riccitiello rejecting the most recent offer, Zelnick warned that if EA took the bid public, Take-Two will “consider all of its alternatives, including discussions with other parties.” Buyers could include other vidgame publishers and also traditional media companies looking to expand into the vidgame biz.

EA will hold a conference call Monday, most likely to try and sell its offer to Take-Two shareholders.

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