[Posted on February 27, 2008 - 5:25 PM]
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DiggElectronic Arts Inc. [ERTS] is dialing up the pressure on Take-Two Interactive Software Inc. [TTWO]
EA chief financial officer Warren Jenson suggested Wednesday that the Redwood City, Calif., video game publisher is prepared to launch a hostile bid for its industry rival, which on Sunday rejected EA's $1.9 billion offer. The executive, in New York as part of the company team negotiating the deal and to huddling with shareholders, expressed wishes to pursue a "friendly" transaction with Take-Two. But he stressed that EA is weighing all options to clinch a deal, which could include taking the offer directly to Take-Two investors or moving to seize control of its board of directors.
Jenson also said the clock is ticking for the target to accept the $26 per share cash offer. "Our ability to offer the significant price we did and to be preemptive was predicated on a quick closing," he said. "At the end of the day, the longer we wait, the more the asset depreciates."
In rebuffing the offer last weekend, Take-Two said it would not discuss a deal until after it releases its marquee Grand Theft Auto IV video game on April 29.
Jenson would not elaborate on how EA is likely to proceed, saying "the ball's in their court to come sit down with us."
If Take-Two continues to resist deal talks, EA could initiate a tender offer for Take-Two or seek to jettison board members that oppose the acquisition. Although a deadline to nominate candidates for Take-Two's board elapsed earlier this week, EA could pursue what is known as a "written consent solicitation," which would involve securing consent from shareholders owning a majority of Take-Two's stock to remove board members and replace them with EA-backed directors. A group of Take-Two investors used that strategy last year in ousting then-CEO Paul Eibeler and taking over the company.
Jenson said he sees no reason to wait until Take-Two releases the next chapter in its Grand Theft Auto series to speak with executives of the company, and no reason for EA to raise its bid. The share price of New York-based Take-Two before the offer was disclosed already reflected the upcoming game release, he noted. Despite a drop in the price of EA shares after its bid, Jenson said long-term shareholders he has spoken with in New York support the acquisition and feel the standing offer represents a "very full and compelling price.
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Some Wall Street analysts contend the deal makes financial sense for EA only if it is completed around the time Grand Theft Auto IV is released, in order to capture revenue from its sales. But Jenson said EA is not limited by the timetable for the game's release and does not expect to close a deal ahead of that date. "It's really the catalogue and their other titles where we think there are some real synergies to be created."
Jenson said that if a deal is reached, EA would seek to close the transaction this summer, in time to integrate Take-Two ahead of the holiday shopping season. He also attempted to alleviate concerns about the future of the Grand Theft Auto franchise should EA acquire Take-Two. Take-Two owns Rockstar Games, the developer of Grand Theft Auto, but Rockstar's value lies largely in its staff of game developers, who could choose to leave the company under new ownership. EA has experienced minimal turnover in its previous acquisitions, he said.
Last year, EA paid $860 million to acquire VG Holding Corp., the parent company of game developers Pandemic Studios and Bioware Corp., from private equity firm Elevation Partners. In 2004, it acquired independent developer Criterion Software Group Ltd.
"Keeping talent is what we do best," Jenson said.
EA has retained Morgan Stanley as its financial adviser on the deal, while Simpson Thacher & Bartlett LLP is providing counsel. Take-Two is getting financial advice from Bear, Stearns & Co. Inc. and Lehman Brothers Inc., while Proskauer Rose LLP is providing legal counsel.
A Take-Two spokesman declined comment. -- David Shabelman, with Matthew Wurtzel
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