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Electronic Arts Launches Hostile Battle for Take-Two

Barry Levine, newsfactor.com Thu Mar 13, 3:31 PM ET

Like a real-life financial video game, Electronic Arts has mounted a hostile takeover battle for Take-Two Interactive Software. The Redwood City, Calif.-based EA said Thursday that a wholly-owned subsidiary has commenced a tender offer for all outstanding shares of Take-Two for $26 a share in cash. ADVERTISEMENT

EA said the offer, valued at about $2 billion, represents a 64 percent premium over Take-Two's closing price on Feb. 15. The offer expires April 11.

Rejected Previous Offer

The New York-based Take-Two previously rejected an unsolicited buyout bid from EA, saying it was too low and ill-timed. One factor in the timing is that Grant Theft Auto IV is due out soon.

Take-Two is the publisher of the hit Grand Theft Auto video games. It has reportedly sold more than 65 million copies, becoming one of the most popular games, but it has also received heavy criticism for its use of crime and graphic violence.

Other bidders have approached Take-Two, it said, although it has not revealed details. A hostile bid, which was once rare in the technology business but is becoming more common, goes around a company's board of directors by appealing directly to shareholders.

Take-Two has experienced conflict between its board and shareholders on other occasions, such as the revolt by shareholders last year who threw out the management and many of the board members, and brought in ZelnickMedia Corp. to run the company.

EA's 'Label' Model

EA CEO John Riccitiello said the latest offer was "the best way" for Take-Two shareholders to "maximize the value of their investment," while adding additional intellectual properties to his company's portfolio. He said EA is prepared to "welcome Take-Two's talented creative teams to the great development organization we've built at EA."

In an open letter posted on the company's Web site, Riccitiello said that, as development costs rise in the games industry, most independent studios don't have much margin for error. As a result, he wrote, large publishers such as EA are merging with independent developers, though the record at other companies for successfully integrating creative teams has been "spotty."

He said EA has a new organization model that "respects creative cultures and gives developers more freedom." He described it as the "Label" model because each of EA's four labels are entities responsible for their own creative decisions and business results.

Riccitiello cited other acquisitions by EA -- Digital Illusions in Stockholm, Criterion in the United Kingdom, Mythic in Virginia, and others -- as examples of the model, whose initial feedback he described as "encouraging." At the same time, Riccitiello said that Take-Two's future is "uncertain" because it faces takeover threats even beyond EA's hostile takeover. His implication is that Take-Two will be sold at some point, so it should come to a larger publishing company with a label model.