With just over two months to go before the April 29th release of Grand Theft Auto
its publisher, Take-Two Interactive, has rejected an unsolicited take-over offer by Electronic Arts.
The Take-Two board has turned down an offer of $26 (£13.23) per share – or $1.9 billion (£967 million) – claiming that EA is undervaluing the company. According to EA this is the sharp end of a process that began with an approach in December, followed by, "...a formal proposal on February 6th. We made a second proposal on February 19th".
Take-Two's stock price closed at $15.55 (£17.90) on February 6th; rose as high as $16.77 (£8.50) on February 13th; the latest available price is $17.36 (£8.80).
Its last 52-week NASDAQ price has seen its highest price sell at $24.80 (£12.60) (March 20th 2007), while it has fallen as low as $11.82 (£6) (August 16th 2007 - shortly after the announcement that GTA IV
would be delayed until 2008
As negotiations go, this one has all the makings of a hardcore game of 'Mexican Chicken Standoff'. Basically, T2 is accusing EA of cashing-in on GTA IV
's imminent arrival and is, therefore deferring its response until post launch.
EA, for its part, is claiming that GTA
is all Take-Two has, and that once that bolt is shot Take-Two shareholders will have nothing to increase their stock value with.
Take-Two's executive chairman, Strauss Zelnick, is quoted as saying:
“...given the great importance of the Grand Theft Auto IV launch to the value of Take-Two, 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).”
This is far from good enough for EA. The February 19th approach was made in the form of a letter from EA Chief Executive Officer John Riccitiello to Take-Two's executive chairman, Strauss Zelnick which, "...warned that further Take-Two delay in accepting EA’s proposal could prevent Take-Two’s shareholders and other constituents from realizing its benefits."
Riccitiello is quoted in the letter as saying, “There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today".
Just in case Take-Two was in anyway unsure about the seriousness of the approach, Riccitiello - using an 'offer you shouldn't refuse' tone - included the following:
"Our strong preference is to conduct a private negotiation. If you are unwilling to proceed on that basis, however, we may pursue other means, including the public disclosure of this letter, to bring our offer and the compelling value it represents to the attention of Take-Two’s shareholders."
(SPOnG has included the text of this letter at the bottom of this story).
Electronic Arts has even launched its own website - aimed at T2 stockholders - called www.eatake2.com
to explain its moves. In terms of the immediacy of the bid, it says:
"We’ve waited to ensure that our proposal did not disrupt development on GTA IV. The game is scheduled to launch in about two months, which means the core development should be essentially complete.
"A timely integration would give a big boost to Take-Two’s games that are scheduled for release later this year and for their entire catalogue leading into the holidays."
Timely indeed - but for who? Take-Two's board is sure it's not timely for them.
“We believe EA's unsolicited offer is highly opportunistic and is attempting to take advantage of our upcoming release of Grand Theft Auto IV, one of the most valuable and durable franchises in the industry.
"Furthermore, the offer values the company at a significant discount to its public peers and does not compensate Take-Two for its intrinsic value and the substantial synergies that the proposed combination would create.”
Any notion that the EA bid might in fact have anything other than GTA
as its focus falls away, with Riccitiello stating, “Despite steps taken (by Take-Two) since March 2007
, Take-Two remains dependent on a limited number of titles, and has limited capital resources. In addition, Take-Two faces ongoing financial, legal and operating issues and a very intense competitive environment. Given these factors, we believe it will be increasingly difficult for Take-Two to create sustainable shareholder value and that Take-Two remains exposed to considerable risk of value loss.”
Take-Two disagrees, highlighting what it perceives as its value; Strauss Zelnick again, "In addition to undervaluing key elements of our business, EA's proposal fails to recognize the value we are building through our ongoing turnaround efforts, which will further revitalize Take-Two.
"While we have made substantial progress already, the turnaround of our business which we initiated in June is not yet complete, and we believe its benefits have not been recognized in either our current stock price or in the value of EA's proposal."
In a reaction to Zelnick's sentiment that Take-Two's current share price does not fully reflect the company's value, Riccitiello wrote, “We believe Take-Two’s current share price already reflects investor expectations for a strong release of GTA IV
as well as the longer-term issues that Take-Two faces. Once GTA IV
ships, Take-Two will again be dependent on less-popular titles and face increasing challenges to compete with larger and better-capitalized competitors.”A further open letter
from Riccitiello draws attention to recent comments he made during a recent presentation
, when he said, “The first thing I want to talk about is the rising cost of development. It's putting pressure on everyone... It's also leading to industry consolidation. It's leading to developers being bought by publishers and publishers disappearing. It's leading to creative failure. The organizations are not coming together in a good way, and we're getting less creative, less innovative products."
So, "greater development costs mean crap games unless you come to us". He finishes the open letter as follows, "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. We’ve sent this proposal in the genuine belief that combining EA and Take-Two would be good for the people who make games and good for the people who play them."
Take-Two is still standing off, sticking to its offer of April 30th talks and stating, "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".
SPOnG really feels that this negotation should now be added as a mission in GTA IV
, see who you can make blink first: Zelnick or Riccitiello - before the stockholders go wild that is.
Electronic Arts owning Rockstar (whoops, Take2)? How does that appeal to you? Tell us in the Forum below.See also: eatake2.com
EA's official release.
Take-Two's official release.The EA Letter
"February 19, 2008
Mr. Strauss Zelnick
Executive Chairman of the Board of Directors
Take-Two Interactive Software, Inc.
New York, NY 10012
Thank you for your letter of February 15, 2008. While I appreciate its courteous tone and value our ongoing dialogue, I am disappointed that you have rejected Electronic Arts Inc.’s (“EA’s”) $25 per share cash offer to acquire Take-Two Interactive Software, Inc. (“Take-Two”) and declined to engage in the friendly negotiations we proposed. We continue to believe that an acquisition of Take-Two by EA is in the best interests of your shareholders, employees and other constituents, and we remain interested in acquiring Take-Two. So, to further demonstrate our seriousness and encourage you to move forward now, I am writing to increase EA’s offer to acquire all of the outstanding shares of Take-Two to $26 per share in cash. This offer is subject to Take-Two agreeing by February 22, 2008 to commence negotiation of a definitive merger agreement and to permit EA to commence a limited due diligence review of Take-Two.
Our revised all-cash offer represents a 64% premium over Take-Two’s most recent closing price and a 63% premium over Take-Two’s 30-day trailing average price (based on prices as of market close on Friday, February 15th). We believe our offer represents a unique and compelling opportunity for Take-Two shareholders to maximize the value of their investment in the company, with materially lower risk than if Take-Two proceeds on a stand-alone basis.
We also believe that the transaction we are proposing represents a uniquely attractive opportunity for Take-Two’s creative teams and key employees. EA is a diversified leader with well-established franchises and proven intellectual properties, global reach, and significant financial resources. I know we both agree that Take-Two’s talented creative teams deserve a permanent home within a stable and growing publisher that provides these teams an environment to do what they do best – create great games. EA is organized in a four-label model that provides our creative teams the autonomy they need to fully realize their creative ambitions, while also providing a stable and supportive corporate and publishing infrastructure which allows them to best address the global marketplace. We have the resources to make the significant investments in technology and infrastructure needed for the most creative and innovative games in the industry. In short, a combination with EA would provide Take-Two’s studios and employees a combination of the right resources for investment and global reach, and the right environment to do their best work.
We believe that Take-Two’s shareholders would not be well-served by any further delay in negotiating and completing the proposed merger. While the videogame industry remains an attractive, high-growth business, the challenges and risks in the business are escalating, and the need for scale is becoming more pronounced. Despite steps taken since March 2007, Take-Two remains dependent on a limited number of titles, and has limited capital resources. In addition, Take-Two faces ongoing financial, legal and operating issues and a very intense competitive environment. Given these factors, we believe it will be increasingly difficult for Take-Two to create sustainable shareholder value and that Take-Two remains exposed to considerable risk of value loss.
We also believe that any delay in this proposed transaction works against the interest of Take-Two’s shareholders, because:
* There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today. We place significant value on the ability to close the transaction relatively quickly so that EA’s strong publishing and distribution network, including our global packaged goods, online and wireless publishing organizations, can positively impact the catalogue sales of GTA IV and also the launch and sale of titles released later this year. We want to work with you and your team to complete the transaction in time to begin realizing its significant marketplace benefits in advance of this year’s holiday selling season.
* We believe Take-Two’s current share price already reflects investor expectations for a strong release of GTA IV as well as the longer-term issues that Take-Two faces. Once GTA IV ships, Take-Two will again be dependent on less-popular titles and face increasing challenges to compete with larger and better-capitalized competitors.
* With GTA IV shipping on April 29, development on this important title must now be essentially complete. We believe now is the right time to complete a transaction with minimal disruption for Take-Two.
We also believe the transaction we are proposing will create value for EA’s shareholders. In addition to the top-line benefits noted above, we can achieve bottom-line benefits by combining Take-Two’s and EA’s corporate and publishing infrastructures and by optimally supporting Take-Two’s creative teams and intellectual properties in EA’s decentralized label structure.
Considerable thought, time and resources have been put forth in developing this offer, and our Board of Directors unanimously supports it. Our offer is not conditioned on any financing requirement. It is subject to the satisfactory completion of a due diligence review of Take-Two, the negotiation and execution of mutually acceptable definitive transaction agreements, and the satisfaction of customary conditions to be set forth in such agreements. We are prepared to move forward immediately with formal due diligence and the negotiation and execution of a definitive merger agreement and believe that with adequate access to the necessary information and people, we can complete both in approximately two weeks. We believe that our due diligence review can be completed with minimal disruption, requiring only limited access to a small number of senior executives of Take-Two and its legal, accounting and financial advisors. We also have prepared a draft merger agreement that we can forward to you immediately.
Our strong preference is to conduct a private negotiation. If you are unwilling to proceed on that basis, however, we may pursue other means, including the public disclosure of this letter, to bring our offer and the compelling value it represents to the attention of Take-Two’s shareholders.
I am available to meet and discuss any and all aspects of this proposal with you and your Board. Again, we believe this proposal represents a unique opportunity to maximize value for Take-Two’s shareholders, and that the combined enterprise would be extraordinarily well positioned to build value for our respective customers, employees, developers and other business partners. We hope that you and your Board share our enthusiasm, and we look forward to hearing back from you by February 22.
Chief Executive Officer"