With another deadline expiring Monday, Aug 18, video game publisher Electronic Arts Inc.'s epic $2 billion tender offer for rival Take-Two Interactive Software Inc. took a surprising turn as the parties reached an agreement on disclosures.
EA will allow its latest offer for Take Two to expire at midnight Monday. The bidder has also accepted Take-Two's offer to provide it with a management presentation detailing non-public information, including the publisher's three-year product schedule and financial projections.
An exchange of letters between EA chief executive John Riccitiello and Take-Two executive chairman Strauss Zelnick over the weekend has led to the agreement. What is unclear is whether EA is ready to walk away from the talks since it will not be able to complete a deal before the Christmas shopping season. Take-Two shares fell 4% in early trading to $23.83.
The smart money continues to pour into social networking deals. The latest comes from a tier-one VC: Kleiner Perkins Caufield & Byers.
Today, the firm announced a $29 million round for Zynga Game Network. Essentially, the company combines two hot categories – social networking and casual games.
No doubt, this deal is a big validator. After all, Kleiner only cares about companies that have the potential of being game-changers.
So, what makes Zynga different? Well, for the most part, the company has devised innovative techniques to create highly addictive games (some say the process is scientific). Plus, there are opportunities to expand onto mobile platforms and to even create virtual worlds.
Keep in mind that Kleiner has invested in a variety of break-out gaming companies in the past, such as Electronic Arts Inc. (NASDAQ: ERTS). In fact, a Kleiner partner, William "Bing" Gordon – the former CEO of EA – will come on the board of Zynga.
Although investors have doubts that Electronic Arts (NASDAQ: ERTS) will ultimately succeed in acquiring rival video game maker Take-Two Interactive (NASDAQ: TTWO), EA continues to press forward, though more in the fashion of the turtle in its race against the rabbit.
EA disclosed in a regulatory filing on Tuesday that it is in "substantial compliance" with the request of information made by the Federal Trade Commission and pledged not to consummate a deal for Take-Two prior to Aug. 21 or when it receives written notice from the agency that it has closed its investigation, whichever date comes first.
Translated from regulatory speak, EA is saying it has provided all of the information required by federal antitrust enforcers to decide whether the proposed deal for Take-Two passes muster. The FTC is required by law to make a decision within 30 days, but EA is giving the agency 45 days both as a conciliatory gesture and also because there may be some issues it will need to resolve in order to get approval.
Video game maker Activision Inc. (NASDAQ: ATVI) on Monday said it has filed a definitive proxy statement relating to its proposed $9.8 billion merger with Vivendi Games Inc. A special meeting of Activision stockholders will be held on July 8 to approve the transaction.
Activision also has been mentioned as a possible buyer for rival game maker Take-Two Interactive (NASDAQ: TTWO), which is being pursued by Electronic Arts (NASDAQ: ERTS). Activision, of course, still has its hands full completing the Vivendi Games merger. But with Take-Two so far being able to drag out the process with Electronic Arts and the government not yet signing off on the regulatory aspects of the deal, there's little question an acquisition of Take-Two won't be completed by July 8.
In a research report put out on Monday, UBS analyst Benjamin Schachter discounts the possibility of Activision going after Take-Two. Schachter notes that despite "some interesting synergies between the companies," and the strength in Take-Two's franchises -- most notably "Grand Theft Auto" -- he's not sure Activision would have an interest in Take-Two's sports business, which has underperformed. Nor would Acitivision have much use for Take-Two's casual or distribution businesses, he argues, also pointing out that there remains some uncertainty about the contract of "GTA" developer RockStar, whose contract expires early next year.
Shares of Take-Two Interactive (NASDAQ: TTWO) were trading modestly higher early Friday despite the company reporting stellar earnings for the second quarter, due largely to the success of its Grand Theft Auto video game. Trading at $27.74, the stock continues to hold above rival Electronic Arts (NASDAQ: ERTS) $25.74 a share, or $2 billion, offer price made in February.
Take-Two execs said Thursday the company continues to explore strategic alternatives and has held discussions with a number of interested parties. But most market analysts still expect EA to emerge the victor for Take-Two, though at a higher price than $27.74.
In a Friday research note, Citi analyst Brent Thill estimates there is a 60% chance EA will walk away with Take-Two for between $28 and $30 a share. He also says EA is likely waiting for federal antitrust approval of the deal before raising its bid "so as not to risk any deal structure changes due to an adverse [Hart Scott Rodino] ruling."
It is about the time that Electronic Arts (NASDAQ:ERTS) is expected to extend its hostile bid of Take-Two Interactive (NASDAQ:TTWO). Take-Two has argued that it is worth much more than the EA offer. Two things would say that the argument is not true.
First, although the new Take-Two "Grand Theft Auto IV" video game launch was extraordinarily successful, it failed to move the company's stock up. Second, no company other than EA has offered a dime for the company. That may be because Take-Two's recent earnings have been lackluster. It also may arise from the fact that very few companies can get the kind of economies of scale that EA can get from buying another video game company.
All of this should convince the EA management that its best bet is to do what Microsoft (NASDAQ:MSFT) did with Yahoo! (NASDAQ:YHOO). Redmond simply walked away and watched the stock of its target fall. Then, lawyers and raiders crawled all over the company.
It looks like Take-Two Interactive (NASDAQ: TTWO) will sell $500 million worth of its new game "Grand Theft Auto IV" the first week that it is on the market. That is better than most expectations. It will help the company make the case that the buy-out offer larger rival Electronic Arts (NASDAQ: ERTS) has made is too low.
It cannot be said that the news is not good for TTWO. According toThe New York Times,"The company is expected to report it sold six million copies of the graphically violent game, 3.6 million of them on the first day."
Electronics Arts has offered $25.74 per share for Take-Two. The company's stock trades about a $1 below that. The good news may push it up some
In a research note, UBS analyst Benjamin Schachter on Monday says that pre-release reviews of the game are "overwhelmingly positive," with one reviewer describing it as "even better than the hype suggests." If GTA IV is as good as expected, Schachter estimates that it could sell six million-plus units in the U.S. in 2008, which would amount to $360 million in retail sales, and seven million to eight million units in the U.S. if the reviews are stellar, or $420 million to $480 million in retail dollars.
Yet while the presumed success of GTA will help Take Two in negotiating a better deal with EA, which has made a tender offer to acquire the company for $26, or $1.9 billion, "at the end of the day we continue to believe that Electronic Arts will be able to buy Take-Two in the $26-$28 range," the analyst writes.
Video game publisher Electronic Arts (NASDAQ: ERTS) said Friday it is extending its $2 billion hostile tender offer for rival Take-Two Interactive Software Inc. (NASDAQ: TTWO) by a week but made the offer conditional on the termination of a poison pill adopted by Take-Two's board earlier this week.
EA said it is extending its tender offer to April 18 after the rival game maker pushed back the date of its annual meeting.
Take-Two delayed its annual meeting until April 17 and also adopted a "poison pill" shareholder rights plan to make the takeover more expensive for EA. At the time, Take-Two urged shareholders to reject the $2 billion buyout bid, saying the offer is just not high enough.
By launching a $26 per share, $1.9 billion tender offer for Take-Two Interactive Software Inc. (NASDAQ: TTWO), video game maker Electronic Arts Inc. (NASDAQ: ERTS) is gambling that it has enough support from its unwilling target's shareholders to avoid raising its offer price and circumvent negotiating a friendly deal.
"We've always felt that the $26 was really a full and fair price and a great deal for their shareholders and employees," Owen Mahoney, Electronic Arts' senior vice president of corporate development, said in an interview Thursday. "We think the longer this goes on, the less valuable the asset is."
EA has not had any direct discussions with Take-Two since it unveiled its orignial bid three weeks ago, other than to notify the company this week of the tender offer, Mahoney added.
Shares of Take-Two Interactive Software Inc. (NASDAQ: TTWO) were up 1.5% at $25 early Wednesday after the company late Tuesday reported better-than-expected results for its fiscal first quarter and raised guidance for fiscal 2008. Though the numbers were decent, they may not be strong enough to warrant a significant bump from Electronic Arts Inc. (NASDAQ: ERTS), which is offering $26 a share, or $1.9 billion, to buy the company.
Take-Two reported a net loss of $38 million on revenues of $240.4 million for the quarter ended Jan. 31, compared with a net loss of $21.5 million on sales of $277.3 million for the year-ago period.
In a research note, Wedbush Morgan analyst Michael Pachter expressed skepticism that Take-Two can stage a turnaround, saying that, with the exception of the soon-to-be-released Grand Theft Auto IV, he is "relatively unimpressed" with its 2008 game lineup. He thinks EA will raise its offer by a buck in the next few weeks and that will be enough to seal the deal.
It looks like business as usual at Take-Two Interactive Software Inc. (NASDAQ: TTWO), which on Tuesday announced it would report first-quarter earnings after the close of trading on March 11. Behind the scenes, though, the video game company continues to try holding off Electronic Arts Inc. (NASDAQ: ERTS) or getting it to raise its $26 a share, or $1.9 billion acquisition, offer.
Take-Two has publicly said it won't talk with EA until after it releases its "Grand Theft Auto IV" video game on April 29. But we wouldn't be surprised if the companies do get together before then to see if there's some common ground on a more amicable takeout. Take-Two knows EA can increase its offer price into the $30 per share range and still have the deal be accretive. But it also knows that if EA pulls the offer, its shares will drop closer to the $17 level, where they were trading before EA's bid.
Shares of Take-Two Interactive Software Inc. (NASDAQ: TTWO) were trading 1.5% higher at $26.40 early in Friday's session, aided in part by information the video game maker disclosed in a regulatory filing late Thursday. Take-Two said it has received "informal indications of interest" about a business combination since Electronic Arts Inc. (NASDAQ: ERTS) made its $1.9 billion offer public last weekend. However, the company said it hasn't received any written offers or engaged in any "substantive discussions" with any party, including EA.
In a research note Friday, Cowen & Co. analyst Doug Creutz writes that a competitive bid is "unlikely," and he still expects EA to acquire Take-Two, though at a higher price. Nevertheless, Creutz downgraded the stock from outperform to neutral, claiming that an uncertain near-term outlook and limited near-term upside make this a good time to take profits in the stock.
Electronic Arts Inc. (NASDAQ: ERTS) chief financial officer Warren Jenson is holding firm to the idea that the video game publisher can hammer out an deal to buy Take-Two Interactive Software Inc. (NASDAQ: TTWO), which on Sunday rejected his company's $1.9 billion acquisition offer. And he hints that his company could up the pressure on Take-Two if if the target continues to stonewall EA.
"Our objective is to do a friendly deal, but at the same time we're keeping all options open," Jenson said in an interview.
Although Jenson would not speculate on whether that means a hostile offer for Take-Two, it's presumably one of the options the company is considering.
Shares of Take-Two Interactive Software Inc. (NASDAQ: TTWO) were trading modestly lower early in Tuesday's session, though at $26.46 they still remain above the $26 a share, $1.9 billion buyout offer from rival video game maker Electronic Arts Inc. (NASDAQ: ERTS) that was unveiled over the weekend. Price action continues to indicate investors expect EA to sweeten its bid or the emergence of another bidder, though some may be re-examining that position.
In a research note published late Monday, Pacific Crest Securities analyst Evan Wilson contends that with its current offer, Electronic Arts already is offering too much for Take-Two and that raising the price would be "incrementally negative." More importantly, he believes the potential for EA to walk away from its bid "is far more significant" than the potential upside from a higher bid because of Take-Two's refusal to enter negotiations until after the release of "Grand Theft Auto IV" April 29.
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With another deadline expiring Monday, Aug 18, video game publisher Electronic Arts Inc.'s epic $2 billion tender offer for rival Take-Two Interactive Software Inc. took a surprising turn as the parties reached an agreement on disclosures.
The smart money continues to pour into social networking deals. The latest comes from a tier-one VC: Kleiner Perkins Caufield & Byers.
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