Take-Two Seeks Alternatives to Electronic Arts Bid
Take-Two Interactive launched “informal discussions” with outside companies, trying to counter Electronic Arts’ $26 per share tender offer that “undervalues” the videogame developer, Take-Two Chairman Strauss Zelnick told investors Wednesday at the Bank of America Small and Mid Cap conference.
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Take-Two has had “expressions of interest” from “numerous parties” and plans to start formal talks with them April 30, the day after Grand Theft Auto IV’s retail release, Zelnick said. Take-Two is willing to enter confidentiality agreements for preliminary talks and will explore options after April 30, he said. Take-Two made a similar offer to EA, which rejected it in launching a hostile March 13 tender offer. EA officials weren’t available for comment at our deadline Wednesday.
Grand Theft Auto IV is expected to pull as much as $170 million in first-day sales and $360 million its first week, analysts said. The Grand Theft Auto series has sold more than 66 million copies, Zelnick said. Take-Two is “fully- confident” about meeting Grand Theft Auto IV’s release date, company officials said. The release was delayed last year from the holiday season to this spring so more development could take place (CED Aug 6 p4). Starting negotiations after April 30 “puts us in the best position from a timing perspective,” Zelnick said. “We think this approach is the best to not only maximize value by looking at all the alternatives, but also mitigating risk by allowing the company to focus on the key release and create all the value it can between now and April 29,” said Zelnick, who took over the company a year ago after a shareholder revolt.
Take-Two has refused to negotiate with EA, which could cause it miss out on a higher offer or none at all by EA, Wedbush Morgan analyst Michael Pachter said in a research note. “Take-Two’s board made a mistake,” Pachter said. “The company was positioned to extract a higher offer from EA by offering a friendly transaction,” but the board continued to take an “adversarial posture.”
EA’s $2 billion bid ignores a potential “significant synergy value” between the companies, including distribution, marketing, and overhead, Zelnick said. Analysts have pegged the annual synergies at $50 million to $210 million or $6 to $29 per share. Buying Take-Two would deepen EA’s sports title portfolio by combining its EA Sports label, which includes Madden Football and Need For Speed titles, with 2KSports, Take-Two officials said.
Besides courting investor support, Take-Two adopted a 180-day poison pill that would kick in once an investor owned 20 percent of the company or anyone above that threshold bought two percent more. The poison pill “will ensure that the Take-Two Board has adequate time to consider all strategic alternatives for maximizing value for Take-Two stockholders,” Zelnick said. The agreement isn’t designed to prevent a takeover “on terms that are fair to and in the best interests of all stockholders,” he said. Take-Two postponed its annual shareholders meeting to April 17 from April 10.