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EA ends talks to acquire Take-Two

September 15, 2008|Alex Pham | Times Staff Writer

Electronic Arts Inc. said Sunday that it had terminated talks to acquire Take-Two Interactive Software Inc., ending a nearly yearlong effort by the world's largest video game company to buy the publisher of the Grand Theft Auto franchise.

The two companies had been locked in a standoff for months ever since Take-Two rejected EA's $2-billion offer as too low. Redwood City, Calif.-based EA said that it decided not to make another proposal after receiving a presentation from Take-Two's management and reviewing materials the New York company had provided.

"In the end, we had a very different view on the value of Take-Two, and we have moved on," Owen Mahoney, senior vice president of corporate development and EA's chief deal negotiator, said in an interview.

Strauss Zelnick, chairman of Take-Two, said in an interview that his company had "a bright future ahead" and was "actively engaged in discussions" with potential partners, which he declined to name.

Mahoney said EA's offer had been based on its ability to close the transaction in time to take advantage of the upcoming holiday season.

"We've always maintained that time was of the essence," Mahoney said. "We've said that the value of this transaction deteriorates over time."

EA's offer, valued at $25.74 a share, represented a 64% premium over Take-Two's stock price when the bid was made public in February. Take-Two shares gained 24 cents to $21.89 on Friday.

Mahoney said EA would consider other acquisitions as long as they fit with the company's two priorities -- improving the quality of its core game franchises and developing an online distribution business with higher operating margins than packaged games sold at retail stores. The company had nearly $2.7 billion in cash and short-term investments as of June 30.

Zelnick, who took the helm in a boardroom coup 18 months ago with a mandate to turn around the beleaguered company, said Take-Two had paid off its debts and was accumulating cash, thanks to a blockbuster launch of Grand Theft Auto IV in April.

Analysts said Take-Two could still thrive as a stand-alone company. "As a smaller company, they would have to take their risks strategically," said Billy Pidgeon, an analyst with IDC. "But they can't be jack of all trades. They're just not big enough."

EA might return to the table, analysts said. "If Take-Two's stock price settles back into the teens, we could see them come back again in a few months," said Michael Pachter, an analyst with Wedbush Morgan Securities. "They walked away, but that doesn't mean they won't look at it again."


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