Take-Two Banks on Gruesome 'Grand Theft Auto' Sales in Fending Off EA Bid

By: Jason Simpkins

The jury is still out on whether or not Take-Two Interactive Software Inc.’s (TTWO) "Grand Theft Auto IV" has met analysts’ expectations in outselling Microsoft Corp.’s (MSFT) marquee "Halo 3," a game that set sales records last September.

But if "GTA4" does meet with the commercial and critical success that has been so highly anticipated, it could significantly shift the balance of power in takeover discussions, or a lack thereof, between Take Two and rival Electronic Arts Inc. (ERTS).

EA, owner of the ever-popular "Madden NFL" and "The Sims" franchises, originally made a $2 billion (or $26 per share) offer for Take-Two, a company that has posted losses for more than two straight years. However, that offer was lowered to $25.74 after Take-Two investors approved an incentive plan that granted more stock shares to company executives, increasing the number of shares EA would have to buy.

Take-Two has been banking the popularity of "GTA4" to increase its leverage in discussions, which it has postponed until after the games release. If "GTA4" proves to be worthy of the buzz surrounding its release, Take-Two will have significantly more leverage when it finally enters into discussions with the world’s largest game publisher.

"April 29 has been a key date with respect to discussions," Take-Two Chief Executive Officer Benjamin Feder said in an interview with Bloomberg. "We’ve repeatedly said that the full commercial potential of ‘GTA4′ will only be evident after the launch."

The game, as well known among parents as young adults for graphic violence and sexually charged content, went on sale Tuesday. First week revenue is expected to reach $360 million, topping industry standard "Halo 3" by approximately $60 million. The game’s publisher thinks it can do substantially better because unlike Halo, which is only available on Microsoft’s Xbox 360 console, "GTA4" can be played on Sony’s (SNE) PlayStation 3.

Early indications have been positive. The game has registered an average score of 99% on review aggregator Metacritic.

Rockstar’s magnum opus is a modern-day masterpiece that could change the way the world views video game," GameSpy, a popular video game Web site gushed. And the New York Times has referred to the game as "a violent, intelligent, profane, endearing, obnoxious, sly, richly textured and thoroughly compelling work of cultural satire disguised as fun.

Shares of Take-Two Interactive fell 39 cents or 1.46% Wednesday to close at $25.24.

Comments

[JGS007]

Unless the company can release hits like GTA IV on a more regular basis, TTWO should rally take the offer. One smash hit every 3-4 years will simply not cut it. They have strong potential in the violent, mature games that target the 25-34 year old gamer, but force many of them to wait. Who wants to wait these days?

[Fedex11]

First of let me start by saying,i purchased this game yesterday well after the third time it locked up after playing just 20 minutes i finally gave up.Apparently this issue is widespread and not just limted to the PS3.Someone needs to get comment from TTWO/Rockstar because in my opinion this is a crock and the co. isnt worth 26 per share let alone 10 dollars.

[Gnawkz]

I believe it closed at $26.24 ... instead of $25.24 on April 30th Wednesday. This is important cause it is above ERTS $25.74

[gaucho420]

I have GTAIV for the 360 and it runs flawlessly. Not a single problem yet and I'm going on five hours of playing it. I also have a friend who's put in close to 7 hours and he's had no glitches what-so-ever.

First, the reason no other GTA's came out for such a long time is because the previous management was too busy fighting and allocating resources towards litigation, which are still on going today but reaching their end. Secondly, this company is no longer a one trick pony. There's GTA of course, and then Bully, Bioshock, Mafia II, the Badland, MLB and NBA 2k, Midnight Club L.A. and others.

Thirdly, this sector of entertainment is surging. Speaking as a gamer...TTAW games are much more interesting than anything EA has to offer, which isn't much. EA's stable of games is old and tired and its evident by its lagging sales and stock price. The company needs a shot in the arm and TTWO would fit the bill perfectly.

Bottom line is videogames are the #1 option for making money in entertainment at the moment and TTWO has the mother of all games. On top of it, this industry is the furthest away from being pirated, due to the size of the games, especially on the 360 and PS3 games. I have friends who have pirated the 360, but its basically useless outside of the 1 player games (you cannot get online consistently with pirated 360 games and I assume PS3 games...SNE and MSFT boots users off and cancel their accounts). So there, over movies and music, this industry as a few more years to not worry about this stuff.

But the bottom line is, outside of a few glitches here and there (and Halo 3 had glitches as well), GTA IV and the rest of the TTWO catalogue is superb, adult oriented and in the sweet spot of the industry. A few glitches here and there are of no-consequence, that happens more and more due to the high end nature of the 360 and PS3, which are more like computers and hence, like a computer will have glitches. If you want glitch free gaming, buy a Wii. I have one as well and its 100% glitch free.

By the way...Bully on the Wii is also another excellent TTWO game made by Rockstar, too bad it went a bit un-noticed, but another example of a really well done game.

Regardless, EA wil end up paying more because they have to. Madden is way old and stale, The Sims will reach that point soon and Rockband is 50% owned by Viacom. EA needs new games and badly...its doesn't have COD4, or Halo, or Mario, or Zelda or Wii fit or nothing...it needs TTWO and it needed it last year.

I expect a bid at $30 and above. If not, then TTWO will go on its own. Please remember that ATVI, not so long ago, was a small player. A few successes with Guitar hero, COD, Tony Hawk...and now a world class company is born and bought out at a huge premium.

TTWO, with the money made by GTAIV, will be able to pursue the same pattern of growth, except faster as GTAIV is a bigger game than anything ATVI owns and Rockstar is perhaps the best videogame studio outside Nintendo.

Rock on.