Filed under: Deals, Electronic Arts (ERTS)

Take-Two Interactive Inc. (NASDAQ: TTWO) rejected a $2 billion unsolicited offer from Electronic Arts (NASDAQ: ERTS), setting the stage for a confrontation between the two companies that would rival any video game. Electronic Arts, the world’s largest video game publisher, said it plans to take its $26 per share offer directly to shareholders. Shares of the developer of the “Grand Theft Auto” franchise soared in premarket trading.

Take-Two had previously rejected a $25 per share offer from EA, leading the company to raise the offer by $1 and make it public, hoping that shareholders would be more receptive than the company’s board/management. The offer is 64% higher than the Feb. 15 closing price of Take-Two’s stock, the last day of trading before it was made.

In a letter, Electronic Arts CEO John Riccitiello stated that “There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering this day.” Take-Two’s response was strange. Chairman Strauss Zelnick told Bloomberg News that although the offer undervalues Take-Two, he’s willing to talk to Electronic Arts after releasing the next “Grand Theft Auto” at the end of April.

This deal is interesting for a number of reasons, not the least of which is that, in spite of its hugely popular franchises like Grand Theft Auto, Take-Two has developed a reputation as something of an accounting/corporate governance outhouse: frequent management shake-ups, SEC investigations, options backdating, hidden pornography in a game, and poor returns for shareholders. Many have alleged that Take-Two’s stock price has been depressed by naked short selling.

Conspiracy theorists take note: if a company’s stock price really is driven to absurdly low levels by abusive market manipulators, the company may become a buyout target.

I would argue that Take-Two’s depressed share price is more a result of bad management, but I would ask Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne to take a look at the Take-Two situation and answer this: If naked short sellers really have driven your stock down to an artificially low valuation, where are the takeover proposals?

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This entry was posted on Monday, February 25th, 2008 at 10:55 pm and is filed under Latest News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.