Take-Two considers sale amid boardroom battle

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Take-Two Interactive Software Inc. said Monday it is weighing a potential sale of the company and other options, as an investor group seeks control of the video game publisher best known for "Grand Theft Auto."

Shares of Take-Two surged more than 8%, hitting their highest close since late 2005 and giving the company a market value of more than $1.6 billion.

Take-Two, the third-largest U.S. video game publisher by revenue, has one of the industry's most popular franchises and could draw interest from rivals such as Ubisoft Entertainment SA, THQ Inc. and Electronic Arts Inc.

But the company has been battered by several years of accounting woes, operational problems, a scandal over hidden sexual content in its games, and a string of quarterly losses as it was unable to contain costs.

When asked who may buy Take-Two, Wedbush Morgan analyst Michael Pachter replied, "Nobody."

A buyer would have to pay heavily to retain the talent behind Take-Two's Rockstar Games studio, maker of the blockbuster "Grand Theft Auto" games that have generated more than $1 billion in sales.

That would make a deal less attractive, Pachter said. "You'd have to buy off those guys to keep them."

Take-Two said in a statement it was reviewing alternatives that it could raise with the investor group, which owns 46% of shares and want to take control of the board and oust Chief Executive Paul Eibeler.

The New York City-based company delayed its annual meeting to March 29 from March 23 to review efforts by the investors, but said it could not guarantee any specific proposal would be presented.

The shareholder group includes OppenheimerFunds Inc., S.A.C. Capital Management, Tudor Investment Corp., D.E. Shaw Valence Portfolios and ZelnickMedia Corp.

Analysts have cheered efforts to revamp Take-Two's leadership as the beginning of what they expect would be a complete restructuring that could take several years.

In February, former Take-Two CEO Ryan Brant pleaded guilty to criminal charges over backdating stock options and settled a civil action brought by the U.S. Securities and Exchange Commission. That opened the door for interested parties to take a look at the company in earnest.

Take-Two shares are up more than 42% on the year and trade at about 28 times forecast fiscal 2008 earnings excluding items, according to Reuters Estimates. EA, the No. 1 video game publisher, is trading at a multiple of nearly 38.

One analyst, who asked not to be identified, said France's Ubisoft and smaller U.S. rival THQ would be the most likely buyers of Take-Two and a price could be around $20 to $25 per share. The stock hit a high of $22.67 during the regular Nasdaq session and finished at $22.61, up $1.76.

EA may be interested in parts of the company, particularly its 2K Sports game studio, the analyst added.

A spokesman for EA, which has annual revenue of nearly $3 billion, declined to comment. Spokeswomen from THQ and Ubisoft also declined to comment.

Take-Two's revenue of just over $1 billion in the last fiscal year is attractive to many suitors, but analysts have long held that it is offset by political, regulatory and financial risks.

The company was forced to pull "Grand Theft Auto: San Andreas" from store shelves in mid-2005 due to undisclosed sexual content. It has also restated results due to both inflated revenue and improper use of employee stock options, and grappled with related regulatory and legal matter.

J.P. Morgan Securities Monday cut its rating on Take-Two to "neutral" from "overweight," citing significant risk to current valuation and increased uncertainty about the future.
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