EA turns hostile

Take-Two offer is $26 per share

Electronic Arts, having been rebuffed in its offer to purchase Take-Two Interactive Software, has gone hostile.

The world's biggest publisher of video games made an unsolicited conditional offer Thursday to buy Take-Two at $26 a share, or $2 billion, the same price Take-Two executives and chairman Strauss Zelnick already have rejected.

Noting that the offer is a 64% premium to where Take-Two shares traded in mid-February, EA CEO John Riccitiello told Take-Two shareholders that the bid "is a great opportunity" to maximize their investment.

Indeed, some of Take-Two's biggest investors already have cashed in much of their holdings, suggesting that they don't see much more upside to EA's bid. Analyst Michael Pachter of Wedbush Morgan Securities added Thursday that those who purchased the recently available shares are unemotional about their investment and "will jump at the offer" of a quick return on their investment.

The clock is ticking, however, as EA's tender offer expires April 11, conveniently 18 days before Take-Two's expected blockbuster "Grand Theft Auto IV" is set for release.

Take-Two, however, is asking its shareholders to "take no action at this time," instead allowing its board 10 business days for further consultation with financial and legal advisers.

Before month's end, executives "will advise Take-Two stockholders of the board's position regarding the offer as well as its reasons for that position," the company said Thursday.

Observers said that while EA could extend its April 11 deadline, its intent is to close its acquisition in plenty of time to benefit from the holiday gift-giving season.

Pachter predicted Thursday that a deal likely would close in October. He also suggested that Take-Two might choose to invite EA to the bargaining table and avoid a hostile takeover, but he thinks such negotiations would result in an offer of only about $1 more.

Shares of Take-Two closed up 3% on Thursday to $25.64.

Pachter also reiterated his "buy" recommendation and $66 price target on EA shares, which closed Thursday at $47.26.

"We think that synergies to EA are substantial, and would contribute anywhere from $110 million-$210 million in annual pretax profit," he said.
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