EA Bids for Take-Two

Logan Frederick

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EA Bids for Take-Two



Gaming giant Electronic Arts has submitted a $2 billion bid for 2K and Grand Theft Auto house Take-Two Interactive.

Electronic Arts has offered Take-Two Interactive $26 per share, or approximately $1.93 billion, in a cash acquisition. This offer, which is a 64 percent premium over Take-Two's current market capitalization, was originally offered to Take-Two Chief Executive Officer Strauss Zelnick in a letter written by his counterpart at Electronic Arts, CEO John Riccitiello, on February 19, only to be rejected by Zelnick, who has vocally taken a stance of independence [http://www.escapistmagazine.com/news/view/79311] for his company.

Riccitiello announced, "Our all-cash proposal is a unique opportunity for Take-Two shareholders to realize immediate value at a substantial premium, while creating long-term value for EA shareholders. Take-Two's game designers would also benefit from EA's financial resources, stable, game-focused management team, and strong global publishing capabilities."

The letter warned that stalling could prevent Take-Two's shareholders from raking in the benefits of EA's offer. "There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today," Riccitiello wrote.

EA added that an agreement to the acquisition would allow Take-Two to expand the distribution network for the launch of Grand Theft Auto IV in 2008. No financial requirements or termination deadlines have been set on the offer, which has been open for negotiation since February 22.

Riccitiello's letter in its entirety reads:
[blockquote]
Dear Strauss:

Thank you for your letter of February 15, 2008. While I appreciate its courteous tone and value our ongoing dialogue, I am disappointed that you have rejected Electronic Arts Inc.'s ("EA's") $25 per share cash offer to acquire Take-Two Interactive Software, Inc. ("Take-Two") and declined to engage in the friendly negotiations we proposed.

We continue to believe that an acquisition of Take-Two by EA is in the best interests of your shareholders, employees and other constituents, and we remain interested in acquiring Take-Two. So, to further demonstrate our seriousness and encourage you to move forward now, I am writing to increase EA's offer to acquire all of the outstanding shares of Take-Two to $26 per share in cash. This offer is subject to Take-Two agreeing by February 22, 2008 to commence negotiation of a definitive merger agreement and to permit EA to commence a limited due diligence review of Take-Two.

Our revised all-cash offer represents a 64% premium over Take-Two's most recent closing price and a 63% premium over Take-Two's 30-day trailing average price (based on prices as of market close on Friday, February 15th). We believe our offer represents a unique and compelling opportunity for Take-Two shareholders to maximize the value of their investment in the company, with materially lower risk than if Take-Two proceeds on a stand-alone basis.

We also believe that the transaction we are proposing represents a uniquely attractive opportunity for Take-Two's creative teams and key employees. EA is a diversified leader with well-established franchises and proven intellectual properties, global reach, and significant financial resources. I know we both agree that Take-Two's talented creative teams deserve a permanent home within a stable and growing publisher that provides these teams an environment to do what they do best - create great games. EA is organized in a four-label model that provides our creative teams the autonomy they need to fully realize their creative ambitions, while also providing a stable and supportive corporate and publishing infrastructure which allows them to best address the global marketplace. We have the resources to make the significant investments in technology and infrastructure needed for the most creative and innovative games in the industry. In short, a combination with EA would provide Take-Two's studios and employees a combination of the right resources for investment and global reach, and the right environment to do their best work.

We believe that Take-Two's shareholders would not be well-served by any further delay in negotiating and completing the proposed merger. While the videogame industry remains an attractive, high-growth business, the challenges and risks in the business are escalating, and the need for scale is becoming more pronounced. Despite steps taken since March 2007, Take-Two remains dependent on a limited number of titles, and has limited capital resources. In addition, Take-Two faces ongoing financial, legal and operating issues and a very intense competitive environment. Given these factors, we believe it will be increasingly difficult for Take-Two to create sustainable shareholder value and that Take-Two remains exposed to considerable risk of value loss.

We also believe that any delay in this proposed transaction works against the interest of Take-Two's shareholders, because:

- There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today. We place significant value on the ability to close the transaction relatively quickly so that EA's strong publishing and distribution network, including our global packaged goods, online and wireless publishing organizations, can positively impact the catalogue sales of GTA IV and also the launch and sale of titles released later this year. We want to work with you and your team to complete the transaction in time to begin realizing its significant marketplace benefits in advance of this year's holiday selling season.

- We believe Take-Two's current share price already reflects investor expectations for a strong release of GTA IV as well as the longer-term issues that Take-Two faces. Once GTA IV ships, Take-Two will again be dependent on less-popular titles and face increasing challenges to compete with larger and better-capitalized competitors.

- With GTA IV shipping on April 29, development on this important title must now be essentially complete. We believe now is the right time to complete a transaction with minimal disruption for Take-Two.

We also believe the transaction we are proposing will create value for EA's shareholders. In addition to the top-line benefits noted above, we can achieve bottom-line benefits by combining Take-Two's and EA's corporate and publishing infrastructures and by optimally supporting Take-Two's creative teams and intellectual properties in EA's decentralized label structure.

Considerable thought, time and resources have been put forth in developing this offer, and our Board of Directors unanimously supports it. Our offer is not conditioned on any financing requirement. It is subject to the satisfactory completion of a due diligence review of Take-Two, the negotiation and execution of mutually acceptable definitive transaction agreements, and the satisfaction of customary conditions to be set forth in such agreements. We are prepared to move forward immediately with formal due diligence and the negotiation and execution of a definitive merger agreement and believe that with adequate access to the necessary information and people, we can complete both in approximately two weeks. We believe that our due diligence review can be completed with minimal disruption, requiring only limited access to a small number of senior executives of Take-Two and its legal, accounting and financial advisors. We also have prepared a draft merger agreement that we can forward to you immediately.

Our strong preference is to conduct a private negotiation. If you are unwilling to proceed on that basis, however, we may pursue other means, including the public disclosure of this letter, to bring our offer and the compelling value it represents to the attention of Take-Two's shareholders.

I am available to meet and discuss any and all aspects of this proposal with you and your Board. Again, we believe this proposal represents a unique opportunity to maximize value for Take-Two's shareholders, and that the combined enterprise would be extraordinarily well positioned to build value for our respective customers, employees, developers and other business partners. We hope that you and your Board share our enthusiasm, and we look forward to hearing back from you by February 22.

Sincerely,
John Riccitiello
Chief Executive Officer
[/blockquote]

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[HD]Rob Inglis

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Jan 8, 2008
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As I have stated on the other thread for this...
Honestly, if EA were to buy out Take Two, I wouldn't buy their games, even if I would have bought the same from Take Two, because I really just can't expect anything quality from EA.

EDIT: The letter from the EA guy sounds like blackmail almost with the "we will take it public if you refuse to comply" bullcrap.
 

Crowbites

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Jan 10, 2008
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Like any company as large and successful as Take Two would consider being bought out by EA a good thing.
 

Cousin_IT

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Feb 6, 2008
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well there goes my renewed faith in EA being anything over than the purely business moneygrabbing corporation it is. Hopefully T2s shareholders wont simply grab the money & run; but I wouldnt be surprised.
 

doughnut

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thedrop2zer0 said:
How long until EA buys out every known video game company in existance and then creates its own console to compete with Nintendo, Microsoft, and Sony?
The eaBoxStationProStreet? I hear it will only play games made by EA, play only the music that's available in EA games and every 15 minutes it pauses game play to show you an ad for another EA game or random product they feel like shoving down your throat.

I for one can't wait for our EA overlords.
 

Dectilon

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Sep 20, 2007
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"There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today," Riccitiello wrote.

That sounds like a threat to me ~~ I liked the part where they claim to foster creativity too.

"EA HUNGERS!"

Brilliant! : D

"Bioshock 2009 coming to a game store near you!"

In January ;)
 

iLogical

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Jan 28, 2008
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Take2 have replied with this already

Strauss Zelnick said:
Therefore, we offered to initiate discussions with EA on April 30th, 2008 (the day after Grand Theft Auto IV is scheduled to release). We believe this offer demonstrated our commitment to pursuing all avenues to maximize stockholder value, while we believe that EA's refusal to entertain this path is evidence of their desire to acquire Take-Two at a significant discount, whereas we believe this value rightly belongs to our stockholders.
 

ChrisP.Lettuce

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Jan 3, 2008
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I wouldn't say this has crushed my hopes for EA's renewed dignity. They say they squandered the ones they had previously bought, I would be curious to see what they do with one they just buy.
 

sammyfreak

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Well to be honest 2K's responsability isent to the gamers but to the shareholders. But if they keep making games as popular as Bioshock their stock will surely rise.
 

Dectilon

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sammyfreak said:
Well to be honest 2K's responsability isent to the gamers but to the shareholders. But if they keep making games as popular as Bioshock their stock will surely rise.
True, but going directly against the will of your customers is rarely good business ~~
 

sammyfreak

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Not necesarily, generaly for long term investments its more important to build a brand. But if your gonna cash a quick buck its sometimes better to "sell out".

On the other hand, people who do "hostile buyouts" are bastards.
 

Dectilon

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It's interesting how they only days ago said that they are aware that they have a bad reputation and are trying to do something about it. And their solution is to buy companies with a good reputation, which is exactly what people hate them for?

Good going there ~~
 

Andy Chalk

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I don't usually like to think of things as "done deals" when they're so far from a resolution, but Electronic Arts has awfully deep (and avaricious) pockets. Generally speaking, what EA wants, EA gets.

My concern is for the future of Take Two/Rockstar franchises like Grand Theft Auto, Manhunt and Bully, not to mention similarly-themed (ie., violent as all hell) titles they may develop in the future. EA may have been willing to bluster about gross mischaracterizations of Mass Effect, but are they going to be up to the task of rolling around in the kinds of ESRB controversies that Take Two and Rockstar seem to create simply by existing? The only way I see that happening is if they maintain Take Two as an entirely separate and independent division (and I mean entirely) which I suppose is possible, but not especially likely to last over the long term.
 

DrmChsr0

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Jan 7, 2008
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The only good that can come out of this is that Jack Thompson gets squished like the bug he really is.

It's probably the only good that can come out of such a situation.