EA: Game over on talks for GTA maker Take-Two Interactive*
* Updated at 5:35 p.m. with comments from Strauss Zelnick, chairman of Take-Two, and game industry analysts.
Electronic Arts said today it has terminated talks to acquire Take-Two Interactive Software, ending a nearly yearlong effort by the world's largest video game company to buy the publisher of the Grand Theft Auto game franchise.
"After careful consideration, including a management presentation and review of other due diligence materials provided by Take-Two Interactive Software Inc., EA has decided not to make a proposal to acquire Take-Two," the Redwood City, Calif., company said in a statement released this afternoon.
The two companies have been locked in a stand-off for months, after Take-Two rejected EA's $2-billion offer as too low. EA brought the offer directly to Take-Two shareholders and extended its deadline for the bid to expire several times as the Federal Trade Commission reviewed the proposal for antitrust implications.
EA executives said today that their offer had been based on the ability to close the transaction in time to take advantage of the upcoming holiday sales.
"We've always maintained that time was of the essence," Owen Mahoney, senior vice president of corporate development and EA's chief deal negotiator, said in an interview. "We've said that the value of this transaction deteriorates over time."
EA's offer, valued at $25.74 a share, represented a 64% premium over Take-Two's stock price when the bid was made public in February. "In the end, we had a very different view on the value of Take-Two, and we have moved on," Mahoney said. Take-Two shares had gained 24 cents to $21.89 Friday.
Mahoney said EA would consider other acquisitions, as long as they fit with the company's two priorities -- improving the quality of its core game franchises and developing an online distribution business with higher operating margins than packaged games sold at retail stores. The company had nearly $2.7 billion in cash and short-term investments as of June 30.
In an interview, Take-Two Chairman Strauss Zelnick said his company had "a bright future ahead of us." Zelnick, who took the helm in a boardroom coup 18 months ago with a mandate to turn around the beleaguered company, said Take-Two has paid off its debts and is accumulating cash, thanks to a blockbuster launch of Grand Theft Auto IV in April. Zelnick also expressed optimism about the October launch of Midnight Club: Los Angeles, a racing game developed by the same studio that created Grand Theft Auto IV.
Analysts said Take-Two could still thrive as a standalone company. "As a smaller company, they would have to take their risks strategically," said Billy Pidgeon, analyst with IDC. "But they can't be jack of all trades. They're just not big enough."
Pidgeon said the company may have to focus its business more tightly around that while Take-Two's basketball games are well respected, its overall sports games business is a "moneypit."
Take-Two could still be an attractive acquisition target for a company with deep pockets, including Sony, which manufactures the PlayStation 3 game console, or Microsoft, which makes the Xbox 360 console, Pidgeon said. "Take-Two has a lot of development and marketing talent," Pidgeon said.
Zelnick confirmed in an interview that his company is in talks with a "strategic partner."
"We remain actively engaged in discussions with other parties," he said, but declined to give further details.
Analysts said EA still could return to the table. "If Take-Two's stock price settles back into the teens, we could see them come back again in a few months," said Michael Pachter, analyst with Wedbush Morgan Securities. "They walked away, but that doesn't mean they won't look at it again."
-- Alex Pham
Grand Theft Auto image from Silvio Sousa Cabral via Flickr