ANALYST REACTION: EAs bid gets hostile

Do you think that Take Two’s shareholders will accept EA’s new direct/hostile bid of $26-per-share? Why?

Michael Pachter, Wedbush Morgan

I do think the bid will be accepted, but think TTWO management will come back next week and offer a friendly deal for more money (probably $1). Over half of the shares are in the hands of risk arbitrageurs, so a deal is highly likely.”

David Cole, DFC Intelligence

The way it looks now it seems many investors have been buying up Take-Two shares hoping to turn a quick profit. Of course, the goal of all shareholders is to try and get that price above $26. It will be interesting to see how it plays out. It could become a game of chicken where both parties don’t want to walk away from the deal but they are hoping the other one blinks first.”

Colin Sebastian, Lazard Capital Markets

We think it’s a fair offer, and if they don’t accept $26, I am curious to know management’s plan to create an equivalent amount of shareholder value.”

Respected industry analyst Nick Lovell

I do believe that the shareholders will accept this offer. For many shareholders, with a limited understanding of our industry, Grand Theft Auto is the cornerstone of the value in Take Two. Riccitiello has said that EA would be much less interested in buying Take Two after GTA IV has been released, and I believe him. I think that many shareholders, who have invested in Take Two because they believe in the recovery, will take the money.”

Nick Parker, Parker Consulting

The $26 range has been about the highest T2s shares have been over the last few years when a GTA iteration comes out, in between times they fall back. I would therefore suggest that $26 is a good price (well above the five year average) and the board should accept this now as, in a year’s time, the shares could be back to the $15 to $20 range. A 50% premium should not be sneezed at.”

Does this mean that GTAIV could become an EA game before release? Or Manhunt 2?

Michael Pachter

: The deal won’t close for two or three months, so neither GTA IV nor Manhunt 2 will be released under EA’s watch (unless, of course, one or the other is further delayed.”

David Cole

: A takeover like this will take some time. For one it has to get regulatory approval. I don’t think there is any way GTAIV would be an EA game before release.”

Colin Sebastian

: I doubt that EA could close a transaction so quickly, but clearly they would like to capture as much GTA revenue as possible this year.”

Nicholas Lovell

: I do believe GTA IV will be an EA game. Whether it is the same game that it would have been under Take Two remains to be seen. I could also imagine EA trying to keep the Rockstar brand as an edgier label, in the same way that wholesome, family-friendly Disney released films like Pulp Fiction or Gangs of New York under the Miramax label.”

Nick Parker

: The timing is crucial – hostile bids can take a long time to resolve and who knows T2 may be successful in defending it. If EA succeeds, it should benefit from some of the GTAIV revenues although the reason to buy T2 should be based on longer term potential of all IPs, not just on this year’s results.”

Is this the most ‘hostile’ and/or aggressive approach for a publisher you’ve ever witnessed?

Michael Pachter

: I don’t recall ever seeing a hostile takeover, so yes, this qualifies as the ‘most’ hostile. I think TTWO management will try to squeeze more money out of EA for its shareholders by making this a friendly deal.”

David Cole

: Yes, there have simply not been hostile takeovers in the game space.”

Colin Sebastian

: I think the proxy battle last year at Take Two appeared to be "hostile". EA’s approach appears to be fairly standard, for example it is similar in approach to Microsoft’s proposed acquisition of Yahoo.”

Nicholas Lovell

: I’m not entirely surprised other suitors haven’t emerged. Microsoft is in the middle of a major fight for Yahoo, and aggressive tactics for Take Two might hinder the much larger battle. Activision is largely out of the picture through being busy and it would be a very aggressive move for THQ. Electronic Arts has the cash, the management and the opportunity to do this right now, and it is breaking the received wisdom that it is impossible to make a hostile bid for a creative company. It is possible that someone else could enter the fray, but I think the most likely outcome is that shareholders accept Riccitiello’s direct approach.”

"Interestingly, in the bid battle for Eidos, John Riccitiello had management on side, but SCi were able to trump his bid (through Elevation Partners) by getting shareholders on side. This time, Riccitiello is targeting the shareholders. I doubt he wants to be beating twice.”

Nick Parker

: EA bought 19 per cent of Ubisoft out of the blue a few years back (EA still has this share) which surprised the UbiSoft board. Infogrames bought GTi, Accolade and Hasbro but they weren’t so hostile.”

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