Electronic Arts Takes Two (TTWO)

Take-Two Interactive (NDAQ: TTWO) may have to do a double-take after Electronic Arts (NDAQ: ERTS) launched a hostile $2 billion tender offer directly to its shareholders. The $26 per share offer is four percent higher than TTWO’s closing price yesterday and a 64 percent premium to the pre-takeover price. Electronic Arts says the bid will expire at midnight on April 11th - the day after Take-Two’s annual shareholders’ meeting. So, is this a deal worth taking for TTWO shareholders?

Take-Two’s real value lies in its Grand Theft Auto video game series that has sold more than 65 million copies, making it one of the most valuable franchises in videogame history. The company is expected to release the next version of the blockbuster series on April 30th and has insisted that it will talk to EA afterwards. Take-Two believes that EA’s buyout attempt as well as reported interest by others is simply an attempt to buy a franchise on the cheap.

Unsolicited takeover offers like these have become increasingly common as larger companies seek to add valuable brands to their portfolio rather than retain key executive. However, these offers can be difficult as investors tend to hold out for a better offer until the last second while boards negotiate a deal behind the scenes if majority shareholder support is in place. This situation is no different and illustrates the clear value of Take-Two’s franchise game.

Interestingly, Take-Two’s existing board consists of hostile shareholders from a different era. The company’s previous management and board was ousted a year ago by dissident shareholders who installed directors from ZelnickMedia to control the company. It will be interesting to see how shareholders respond to this offer, and more importantly, how the board responds to the offer given their past skepticism in the offer.

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