Wedbush Morgan Securities analyst Michael Pachter (pictured at left) doesn't mince words when discussing Take-Two Interactive Software Inc.'s [TTWO] latest rejection of Electronic Arts Inc.'s [ERTS] $26 a share, $1.9 billion buyout offer. In a research note put out on Wednesday after Take-Two recommended its shareholders reject EA's unsolicited tender offer, Pachter wrote he was "surprised" the offer was rejected and that Take-Two has "virtually no chance of finding a better offer."

And while he admits that he agrees with many points Take-Two makes in its press release on Wednesday in support of its argument, including the notion that EA was being "opportunistic" in attempting to acquire the company before release of its Grand Theft Auto IV video game next month, he also takes issue with much of the companies reasoning.

With regard to Take-Two's bullet point that EA's offer does not reflect the potential synergy value that a proposed combination would create, Pachter writes, "we are somewhat dismayed by the Take-Two Board's sense of entitlement. It is not customary to pass the synergies to be gained from operating efficiencies on to the selling shareholders."

He also takes issue with Take-Two noting the EA offer would be taxable to its shareholders, writing, "we agree that the offer is taxable, and are baffled as to how Take-Two's Board proposes to offer its shareholders a tax-free exit plan. As a tax lawyer (California Bar number 102110), I'm supposed to be an expert on these matters, and in my 26 years as a lawyer, I am unfamiliar with how a shareholder can sell stock on a tax-free basis."

As for the bottom line, Pachter notes Take-Two's shares were trading below $17 at the time of the offer and it represents a $600 million premium to its enterprise value before the offer. "We completely disagree about whether EA's offer adequately reflects Take-Two's financial condition, strategy and future prospects. Prior to the offer, Take-Two's shareholders valued the company at $17. The premium offered by EA fully reflects Take-Two's prospects."

Finally, Pachter contends the strategy adopted by Take-Two's board of directors was "ill-advised," and the company could have gotten EA to increase its offer by a $1 or more per share "had they offered an olive branch." Instead, he said Take-Two is taking a risk that EA will either walk or lower its bid once Grand Theft Auto IV is released.

Next time, we hope Pachter comes out and says exactly what he feels. -- David Shabelman

See March 26 story from Tech Confidential
See March 26 statement from Take-Two Interactive Software
See March 26 post from BloggingStocks