EA drops hostile Take-Two bid and enters talks

NEW YORK (Reuters) –

Electronic Arts Inc (ERTS.O) will drop

its hostile $2 billion bid for rival video game publisher

Take-Two Interactive Software Inc (TTWO.O) on Monday and

instead pursue private talks with the company.

While shares of Take-Two fell 4 percent on the specter that

EA might walk away entirely, or come back with a lower bid,

analysts said a deal was more probable now that friendly talks

were in the offing.

EA said on Monday its chief executive, John Riccitiello,

and Take-Two Executive Chairman Strauss Zelnick held talks over

the weekend, and Take-Two’s management has agreed to present

its three-year product pipeline and financial forecasts to EA.

“I think EA called Take-Two and said ‘you can either

participate or not,”‘ said Wedbush Morgan Securities analyst

Michael Pachter. “I think Take-Two … is going to negotiate a

dollar (per share) higher and then claim victory. A deal is

going to get done.”

EA, publisher of the popular “Madden,” “Need for Speed” and

“Rock Band” games, had in April offered $25.74 per share for

Take-Two, which rejected the price as too low.

With no chance to add Take-Two’s blockbuster “Grand Theft

Auto” game to EA’s roster before the holiday shopping season,

EA said it was taking a second look at its offer price.

“That $25.74 was predicated on distributing their products

at Christmas this year,” EA spokesman Jeff Brown said. “Going

forward, we are challenged to validate that $25.74 price.”

Take-Two shares fell 77 cents to $24.07 in midday trading

on Nasdaq. The stock stood at around $17 in February, just

before EA’s first offer was announced. EA shares were off $1,

at $47.24 on Nasdaq.

REGULATORY REVIEW

EA’s acquisition of Take-Two would spur wider distribution

of “Grand Theft Auto,” already one of the industry’s most

popular franchises, and add Take-Two’s NBA basketball and MLB

baseball titles, making it the largest sports game maker.

EA wants GTA and other games like “BioShock” and

“Civilization” to boost its own line-up and meet the threat

posed by rival Activision Blizzard Inc (ATVI.O), maker of the

hit “Guitar Hero” series.

Both EA and Take-Two showed signs of posturing on Monday,

analysts said, citing a tacit threat by EA to cut its offering

price or walk away, and Take-Two’s insistence that it “remains

unwavering” in its belief that $25.74 a share is “inadequate.”

Take-Two added that it is also in talk with other parties,

and several analysts suggested the company was angling to

squeeze more from EA. They said a deal could be completed soon

after the U.S. Federal Trade Commission completes its antitrust

review of the proposed transaction, expected on Thursday.

“A mutual deal is going to have to be higher than $25.74,

in order for the board of Take-Two to save face — call it a

dollar or two dollars more,” said Hudson Square Research

analyst Daniel Ernst. “EA can certainly afford to pay more.”

Electronic Arts could also try another hostile bid, but

would rather keep the deal friendly in order to keep the

creative personnel at Take-Two from bolting, analysts said.

“The integration risk is that you lose the talent, and EA

can’t afford to lose the talent,” said Janco Partners analyst

Mike Hickey. They definitely win by getting the IP

(intellectual property), but it’s the talent that draws the

quality and it’s the quality that sells the games.

EA first pursued a deal for Take-Two privately last

December. It announced an unsolicited offer of $26 a share in

February and cut the bid to $25.74 a share in April because of

the issuance of additional Take Two shares.

EA said that as a result of the weekend talks, it will let

its tender offer for all outstanding shares of Take-Two to

expire on Monday evening. EA previously extended the offer five

times, in part to allow regulators time to review the deal for

antitrust concerns, and after a lukewarm response from Take-Two

shareholders.

(Editing by Lisa Von Ahn, John Wallace and Gunna Dickson)