EA's Take-Two takeover expires, talks begin

For a brief moment this morning, it appeared that the six-month-long Electronic Arts/Take-Two Interactive takeover saga might have finally come to a close. In separate statements issued this morning, both companies confirmed that EA's most recent $2 billion tender offer to purchase all outstanding Take-Two stock at $25.74 per share would expire as of 11:59 p.m. tonight. The deadline was set after EA's bid became compliant with the Federal Trade Commission rules last month.

In an open letter to Take-Two chairman Strauss Zelnick, EA CEO John Riccitiello said, "Given the passage of time, we have to validate the assumptions used in the model to support our offer price of $25.74 per share in cash. In addition, we no longer believe we can integrate Take-Two ahead of the important holiday season. Accordingly, we require due diligence to support a transaction and are therefore letting the tender offer expire tonight."

However, as has been the case on several occasions prior, the EA/Take-Two mating dance is far from over. In fact, Take-Two appears to have gone from being vocally disdainful to semireceptive of EA's advances.

According to the letter, Riccitiello and Zelnick discussed the buyout offer last Friday on the phone. Yesterday, Zelnick sent Riccitiello his own letter inviting EA "to participate in Take-Two Interactive Software, Inc.'s formal process to evaluate the company's strategic alternatives." In the same letter cited above, Riccitiello said that EA is "pleased to accept [Take-Two's] offer."

In his letter, Zelnick said the next step is that "EA...enter into a confidentiality agreement" prior to "an in-depth management presentation...[that] includes material nonpublic information" by the Take-Two board. In said presentation, executives from the New York-based Rockstar parent will outline "significant strides since EA first expressed interest in the company...including information relating to our three-year product-release schedule and management's financial projections. The presentation also includes information about the underlying factors that have driven our strong operational and financial performance."

Why, after months of being ardently unreceptive of EA's offer, is Take-Two now sitting down with the company? One likely reason is its share price. In February, Zelnick said that his company would not entertain EA's offer until after the Grand Theft Auto IV launch in order to "maximize [Take-Two] stockholder value." As expected, the game shattered sales records, selling more than 8.5 million units worldwide during the 32 days after its April 29 launch.

However, GTA IV's NASDAQ boost to Take-Two was only temporary, and the publisher's share price has steadily slipped after hitting a 52-week high of $27.31 on June 5. As of press time, Take-Two's stock was at $24.20, $1.54 per share below EA's current offer--although still far above the $17.36 price it held on the last trading day before the offer was made public.