Electronic Arts, Take-Two: Officially a Hostile Takeover

The saga surrounding Electronic Arts Inc.’s (ERTS) proposed takeover of rival Take-Two Interactive Inc. (TTWO) is getting juicier with each passing day. While the daily television pundits talk up a U.S. driven global recession, it’s somewhat refreshing to sit back and observe a gold old fashioned hostile buyout (Gordon Gecko would be proud).

Well, now it could be characterized as hostile following a press release from Electronic Arts on March 12 that it was submitting a tender offer for all outstanding shares of Take-Two. Management reaffirmed its intended purchase price of $26.00 per share, or $2.0 billion, a figure rebuffed by Take-Two’s executives on its March 11 earnings conference call.

Long gone is Electronic Arts' bear hug type offer, and now time will tell whether Take-Two shareholders view the purchase price as appropriate. The move to such a hostile position does raise the probability that Electronic Arts will lose creative design talent at Take-Two should a deal be consummated, but in our opinion, finality needs to come to the situation (especially considering Take-Two’s better than expected 4Q`07 financial performance, improving product pipeline, and the impending release of Grand Theft Auto IV).

We are reiterating our overweight recommendation and reaffirming our belief the purchase price will eventually be in the $28.00-$30.00 per share range.

Written by Brian Sozzi, a Research Analyst for Wall Street Strategies (www.wstreet.com) specializing in the apparel/hardline goods sectors of the retail industry.

Disclosure: none