March 2, 2008 // 9:48 pm
- In his latest note to investors, Doug Creutz of analyst group Cowan has said that while he believes few other companies can make as synergistic a bid as Electronic Arts for Take-Two, in the end EA will likely bump its original $26/share bid to $30-32.
"Several key shareholders control a significant portion of Take-Two's float," notes Creutz, "including Oppenheimer Funds, who was the major player in Take-Two's board coup last March. We believe that one of EA's goals in making its bid public was to sound out these shareholders on what price they are willing to sell to EA."
"We think that these shareholders are likely to view an offer above $30 as too compelling to leave on the table, given the time value of money and the ability to lock in a significant gain on a company that has had historically volatile stock and financial performance," he adds.
Creutz goes on to say that while Activision could financially offer a competitive bid, it's currently bogged down with the completion of the Vivendi merger, and while Ubisoft would make strategic sense, Cowan believes "Ubisoft's management is focused in other directions."
That leaves EA alone, and Creutz says "we think EA can justify a bid of up to $32 even assuming that the top talent at Take-Two's Rockstar Games leaves the company," but adds that "it is most likely that Rockstar's top talent would remain with EA, given EA management's new decentralized approach to managing development, the greater financial and distribution resources available at EA, and the desire to continue working on Rockstar's key (and very lucrative) IP, Grand Theft Auto."
Creutz says he believes Rockstar retention is a top priority for EA, and concludes with five reasons why the two make a good fit:
(1) with the recent consolidation in the video game space, Rockstar does not have a lot of other employer choices.
(2) EA can certainly afford to pay Rockstar.
(3) EA has moved to a more decentralized management approach to its developers, which we think Rockstar would be comfortable with.
(4) Rockstar would benefit from working within EA's infrastructure and distribution network.
(5) since Rockstar's compensation is highly tied to the performance of its games, they have an enormous incentive to remain associated with Grand Theft Auto, one of the top-selling video game franchises in history.