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Forbes magazine is now speculating that Take Two (TTWO) is going to avoid a predatory takeover from Electronic Arts (ERTS) by instead merging with Ubisoft. This makes a lot of sense.

  • From a game culture point of view this is a much better fit. Both Take Two and Ubisoft are good at nurturing original IP to create brands and at giving studios a lot of creative independence.
  • One problem with the proposed Electronics Arts deal is that it takes over $2 billion of equity finance out of the industry. Like the industry needs to increase its gearing when it is expanding at a phenomenal rate, the Ubisoft merger would retain the equity within the industry, a far better long term idea.
  • Another problem with the proposed Electronic Arts deal is that it would give it a near monopoly in sports games. With the proposed Ubisoft merger we would still have two competing sports games publishers. And competition is good.
  • Conventional video game publishing has massive economies of scale. A Ubisoft/Take Two merger would give the industry three big global publishers, the other two being Vivendi (OTCPK:VIVEF) /Activision (ATVI) and Electronic Arts. These three would then be able to pick up second rung publishers like Sega (SGAMY.PK), EIDOS and THQ (THQI).
  • If Electronic Arts are to get the best value out of spending $2 billion, it may well be better off spending it on quality game development than acquiring a competitor. It is still some way short of where it needs to be on putting its own house in order, in terms of game quality.

And, of course, Electronics Arts wins with either outcome because since 2004 it has owned 19.9% of Ubisoft, one of the best investments it could have made.

Source: Take Two's White Knight, Ubisoft, Rides In