EA is trying to buy TakeTwo. The speed with which EA management is moving hints at desperation. A cash offer of US$26 per share was rejected outright by the Take-Two board, even though that's 65% higher than what those shares are currently worth.
It was an extraordinarily generous offer, until you factor in GTA IV. EA lost money last year, and the prospect of reaping the profits from what could be the biggest video game of all time was impossible to ignore.
Since the Take-Two board rejected the offer without bothering to tell their shareholders, EA has taken the liberty of going public. In an open letter on the EA website, CEO John Riccitiello makes his case: "Development costs are rising dramatically and games that aren't big hits struggle to reach profitability. Most independent studios don't have much margin for error. The result has been consolidation - large publishers are merging and independent developers are more amenable to being acquired."
He even makes light of EA's chequered history of takeovers. "We've all heard the stories about teams that got mismanaged in a merger - I know I've got a few." Former employees of Westwood and Origin Systems would certainly have strong opinions on the matter. Yet he claims that EA has changed its ways, introducing a 'Label' system that 'respects creative cultures and gives developers more freedom.' He also asserts that employees of DICE, Mythic, Criterion, Pandemic, and BioWare are finding their new lives under the EA umbrella simply fabulous.
He has other fine words to say, but the meat of his message is this:
"So, that's it. We've made a proposal to buy Take-Two. Our preference is to make this a friendly transaction and I'm hopeful we can achieve that."
In other words, EA is willing to make a hostile takeover bid for Take-Two. What's more, Mr. Riccitiello wants the matter settled before GTA IV goes on sale - in just over two months time!
With the completion of the Activision Blizzard merger just months away, EA is clearly getting desperate to assert its position as the king of games publishers. No matter the cost.
Take-Two Interactive has issued a statement revealing why the takeover bid was rejected:
"After careful evaluation, the Board has determined that EA's proposal substantially undervalues Take-Two's robust and enviable stable of game franchises, exceptional creative talent and strong consumer loyalty. We believe EA's unsolicited offer is highly opportunistic and is attempting to take advantage of our upcoming release of Grand Theft Auto IV..."
Strauss Zelnick, Executive Chairman of the Board at Take-Two, elaborated: "Electronic Arts' proposal provides insufficient value to our shareholders and comes at absolutely the wrong time... the Board has determined that the only prudent and responsible course for our Company and its stockholders is to defer these discussions until immediately after Grand Theft Auto IV is released. Therefore, we offered to initiate discussions with EA on April 30th, 2008 (the day after Grand Theft Auto IV is scheduled to release). We believe this offer demonstrated our commitment to pursuing all avenues to maximize stockholder value, while we believe that EA's refusal to entertain this path is evidence of their desire to acquire Take-Two at a significant discount, whereas we believe this value rightly belongs to our stockholders."
In other words, after GTA IV goes on sale Take-Two shares will go through the freaking roof. While he didn't use the exact words, Zelnick clearly feels that EA is taking the piss if they think they can get away with this.
The complete statement, as well as the letters where Riccitiello makes the buyout offer and Zelnick rejects it, are online in their entirety at the Take-Two website.
It's worth noting that if EA gets its hands on Take-Two, it would control the Rockstar Advanced Game Engine, the technology that makes GTA IV possible. For further insight into EA's technology strategy, see our feature article EA buying the next-generation.