EA’s Bid to Hijack Grand Theft Auto

Electronic Arts Inc. says it is pushing ahead with a bid to take over upstart gaming rival Take-Two Interactive Software Inc., despite rebuffs from the smaller company. EA said in a statement Sunday it is making an all-cash bid of US$26 a share, or about US$2 billion US, for the NYC-based creator of Grand Theft Auto. EA released the details of the proposal to gain the attention of Take-Two shareholders after their board turned down its second bid in two weeks. The offer represents a 64-per-cent premium over Take-Two’s closing stock price of $15.83 on Feb. 15th, the last trading day before EA made its move. Take-Two shares closed at $26.85 today.

EA Chairman John Riccitiello has suggested that Take-Two’s quick acceptance of the offer would mean EA could put its marketing muscle behind the eagerly awaited release of Grand Theft Auto IV, set for April 29th. In its response, Take-Two called the EA offer a “highly opportunistic” attempt to take advantage of the game’s upcoming release.

In an email interview on the prospective acquisition, industry veteran Sean Murch, CEO of Playful Entertainment Inc., endorsed the deal and likes EA’s IP strategy:

EA’s bid for Take-Two, like their recent Blueprint initiative, shows just how committed they are to building original IP. Take-Two and its related companies have proven that they can create and exploit compelling IP in the interactive market. This makes them a reasonable target under EA’s new IP strategy. The acquisition would also provide additional revenue streams, which should help prop up EA’s share price.

It is not uncommon for EA to acquire companies that either have a head start in a strategic sector that EA has ignored (like Jamdat Mobile), or have successfully done something that EA is not very good at (IP generation). The long term success of such an acquisition will ultimately depend on how EA seeks to “add value” to the target company, post acquisition.

Given the school of hard knocks learning they have had in the past on this issue, and in light of Chairman John Riccitello’s recent comments on this very subject, I am inclined to give them the benefit of the doubt. In many ways I think that EA, under Riccitello’s guidance, has matured immensely in the past couple of years.

The offer comes as Take-Two works to regroup following a rocky year. Shareholders threw out most of the company’s top leadership last spring for poor results, accounting troubles and the controversy surrounding sexual content in their games. Chris Bennett of Davis LLP’s Video Game & Intellectual Property Law Group sees the positive with the potential negative of such an acquisition: “From an impact perspective, the takeover would likely be good for the distribution of GTA, but it seems a bit risky–especially given the problems Take-Two has been experiencing ever since Hot Coffee.”

Time will tell if EA gets burned on this one.

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