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Electronic Arts goes hostile with Take-Two offer

By Anupreeta Das Thu Mar 13, 10:40 AM ET

SAN FRANCISCO (Reuters) - Electronic Arts Inc (ERTS.O) on Thursday launched a hostile offer for rival video game maker Take-Two Interactive Software Inc (TTWO.O) at $26 a share, taking the $2 billion bid directly to stockholders. ADVERTISEMENT

Take-Two, publisher of the popular "Grand Theft Auto" series, last month rejected EA's unsolicited all-cash offer at the same price. The bid represents a 64 percent premium over Take-Two's closing stock price on February 15, the last trading day before EA sent the proposal to the company.

"We believe Take-Two investors will see our tender offer as the best way to maximize the value of their investment in Take-Two," EA Chief Executive John Riccitiello said in a statement.

Take-Two Chairman Strauss Zelnick has said the bid was "the wrong price and the wrong time," arguing that EA was trying to buy his company on the cheap just before the April 29 launch of "Grand Theft Auto 4."

This week Take-Two forecast quarterly earnings above Wall Street estimates, saying orders for the game were better than expected.

But Wedbush Morgan analyst Michael Pachter suggested that Take-Two shareholders might disagree with Zelnick and warm to EA's bid.

"Notwithstanding Take-Two's opposition, we think investors will jump at the offer," he said in a note to clients, adding that a number of new shareholders may be risk arbitrageurs. "Their response to EA's offer will be less emotional and more pragmatic than the response from Take-Two's management."

REDUCED STAKES

Earlier this week, Take-Two's two biggest shareholders disclosed that they had drastically cut their stakes, potentially undermining management's stance that the buyout offer was too low.

Mutual fund company Oppenheimer Funds, Take-Two's biggest shareholder, halved its holdings to 8.8 million shares, reducing its stake to 11.5 percent from 23 percent, according to U.S. regulatory filings.

FMR LLC, the parent company for the Fidelity mutual funds and the second-largest owner of Take-Two shares, reported that it had slashed its stake to 2.75 percent from 14.7 percent.

But Zelnick said earlier in the week that the big stock sales did not cause executives to reconsider their rejection of EA's offer.

"It certainly doesn't put any pressure on us," Zelnick said. "Who owns your shares isn't really the issue; after all, we're here for all the shareholders."

Take-Two shares climbed 2.6 percent to $25.55 in early Nasdaq trading, but were still below a high of $27.61 set on February 28, shortly after EA announced its offer.

EA stock fell 1.6 percent to $46.48. The company's tender offer, through a wholly owned subsidiary, will expire at midnight on April 11, but could be extended. Take-Two's annual meeting is scheduled for April 10.

Morgan Stanley & Co Inc is dealer manager for the tender offer, for which Georgeson Inc is information agent.

(Additional reporting by Franklin Paul in New York and Peter Henderson in Los Angeles; Editing by Lisa Von Ahn)