Take-Two Sticks To Its Guns on EA’s Effort To Buy It
Take-Two executives stood firm Tuesday on the continuing effort by rival Electronic Arts to buy Take-Two, again saying EA’s last offer of $26 per share cash (CED Feb 26 p5) was too low. Take-Two’s board maintains that EA’s bid “undervalued the company and wasn’t in the best interests of Take-Two’s stockholders,” Take-Two Chairman Strauss Zelnick told analysts in a conference call.
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Take-Two had told EA it would be willing to discuss the issue after the April 29 release of game Grand Theft Auto IV, but EA executives refused to wait, claiming a deal had to be made sooner. EA’s offer “ignored the tremendous operational progress we've made in the past year and our solid plan going forward,” Zelnick told analysts. He called EA’s last offer still “substantially lower than the values according comparable companies and creative assets by Electronic Arts and by the market as a whole.” The proposal “failed to compensate Take-Two shareholders for any of the synergies EA would receive from the business combination,” he said.
Zelnick played down the significance of a new severance plan instituted by Take-Two in case EA or another company bought it (CED March 12 p11). The new plan “only takes care of about 10 percent” of Take-Two staff, he said, noting that “senior management was already covered by employment agreements in prior plans and the tier four employees were also covered by prior plans.” The plan was “relatively typical for the industry and relatively typical among our direct competitors,” he said.
Analysts were mixed Wednesday on the EA effort’s fate. Wedbush Morgan Securities analyst Michael Pachter predicted that “to save face,” Take-Two executives would back off their position and talk to EA before Grand Theft Auto ships. EA might be willing to raise its offer $1 per share and a final offer will be presented ahead of Take-Two’s annual meeting April 10, he predicted. If the final offer is rejected, he expects EA to “walk” away from the effort to buy Take-Two, Pachter said. Other analysts said they think EA will make a hostile effort to buy Take-Two, making an offer of some sort to Take-Two shareholders if Take-Two management doesn’t change its position.
“The Grand Theft Auto franchise is Take-Two’s most valuable property and games in that series had sold more than 66 million units to date,” Zelnick said. He declined to say if the latest game in the series had gone “gold” -- meaning that a software title is ready to be released. But Zelnick stressed that Grand Theft Auto IV is on track to ship April 29 after a delay from late last year. Take-Two is “highly confident” the game “will exceed the expectations of even the game’s most devoted fans and that it will set a new milestone for this incredibly valuable franchise,” he said.
Take-Two “received significant preorders from retailers” for Grand Theft Auto IV that were “better than expected and we expect a very strong worldwide launch on April 29,” CEO Benjamin Feder told analysts. The company offered no details on preorder numbers.
Encouraging preorders and “initial gamer feedback” for Grand Theft Auto IV were among “key” reasons why Take-Two boosted its fiscal 2008 earnings forecast (CED March 12 p8), Chief Financial Officer Lainie Goldstein said. Another key factor: Q1 results posted Tuesday surpassed company estimates, she said. Take-Two raised its fiscal year sales estimate to $1.25 billion-$1.4 billion from a $1.1 billion- $1.4 billion forecast in December, and its non-GAAP earnings per share forecast to $1.35 to $1.55 from $1.30 to $1.50 (CED Dec 20 p4).
Take-Two executives said nothing in the call about the shareholder suit filed Friday against the company in the Delaware Court of Chancery on behalf of Patrick Solomon. But Take-Two said in a 10-Q filing with the SEC “we believe the claims lack merit, and intend vigorously to defend against them.” Solomon claimed Take-Two and its management breached their fiduciary duties by, among other things, refusing to explore premium offers by EA to acquire all Take-Two shares, enacting a bylaw amendment to entrench the current board by preventing stockholders from nominating and electing alternate directors, agreeing to amend a management agreement with ZelnickMedia, and issuing a proxy statement for the 2008 annual meeting alleged to contain misleading and incomplete information. The complaint sought preliminary and permanent injunctive relief, as well as damages.