EA To Take Two: Up Yours, Buddy

Like two ships passing in the night, Electronic Arts and Take Two have honked their horns, flipped each other off and are now sailing quietly away and apart, under the moon's glow.

EA issued a press release today announcing the end of negotiations to acquire fellow publisher Take-Two, saying that while it continues to have "high regard for Take-Two's creative teams and products," it has decided to terminate discussions of a buyout. The decision came despite efforts by Take Two to broker a more friendly deal between the companies, after months of resisting a hostile takeover attempt.

On the Take Two side, Chairman Strauss Zelnick responded by affirming the stockholders' decision to reject EA's hostile bid, adding that his management team remains "actively engaged in discussions with other parties in the context of our formal process to consider strategic alternatives."

It may be overstating things to say that a "formal process to consider strategic alternatives" is managementspeak for "Oh, God, please help us," but Take Two shareholders could very easily end up wishing they hadn't played quite so hard-to-get with EA. EA offered roughly $26 per share in its initial takeover attempt but Take Two management rejected the price as inadequate, based largely on the belief that the company's value would continue to rise leading up to, and following, the release of Grand Theft Auto IV in April. But while Take Two stocks did surge briefly in the wake of that launch, share prices began a slow but steady decline in June, falling well below the EA price point. Making things worse, after closing at $21.89 on Friday, the price plummeted almost 25 percent on the news of the EA deal falling through, and at this moment sits around $16.50.

So while the legions of EA haters and GTA fans may hail the day as a triumph, the reality may turn out to be very different. Take Two is now in a far more precarious position, and the future of the men currently at the helm, Zelnick and President Ben Feder, may depend largely on what they're able to do in the fallout of this falling-out. Take Two has an impressive stable of games but nothing anywhere near the scale of Grand Theft Auto is on the horizon, leaving the prospects for regaining share value a bit on the bleak side - unless a deal with a different company can be engineered. But with Take Two's current share price around 35 percent lower than EA's offer, and EA no longer interested, making that deal without looking like they blew an opportunity seven months ago is going to be a very tough play.

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Is it wrong to be mildly annoyed at the "Up yours, Buddy" part of this headline? It's just business, no need to make it sound like some epic feud is going on.

Take-Two made them sign a bunch of non-disclosure agreements and apparently has some outrageous games that they think will s*** gold. EA doesn't agree and also noted that at this stage, the delays had been so significant that they wouldn't have merged in time for X-mas and would thus make the deal stagnate during the slow summer quarters. That would look bad to their shareholders because, hey why isn't my 2 billion dollar acquisition making me rich yet?

But yeah, here's hoping Take Two does actually have something brilliant up their sleeves. They make some of the best and most creative games out there and it'd be a shame if they had to start downsizing.

I don't get the concept of a 'Hostile Takeover'

How can a company buy out another company without the other company consenting to it?

Danny Ocean:
I don't get the concept of a 'Hostile Takeover'

How can a company buy out another company without the other company consenting to it?

With guns, a big white van and henchmen, no but seriously I have no idea.

Danny Ocean:
I don't get the concept of a 'Hostile Takeover'

How can a company buy out another company without the other company consenting to it?

It's when...okay, you have a bunch of shareholders who "own" the company right? They put a manager, CEO, whatever in charge of the company.

A hostile takeover is when the manager does not want to sell out but the hostile company is offering so much cash that the shareholders step in and order the manager to sell. It's a decision based on profits as opposed to what the actual managers think is best for the business.

L.B. Jeffries:

Danny Ocean:
I don't get the concept of a 'Hostile Takeover'

How can a company buy out another company without the other company consenting to it?

It's when...okay, you have a bunch of shareholders who "own" the company right? They put a manager, CEO, whatever in charge of the company.

A hostile takeover is when the manager does not want to sell out but the hostile company is offering so much cash that the shareholders step in and order the manager to sell. It's a decision based on profits as opposed to what the actual managers think is best for the business.

But surely that can't work if the shareholder is the manager and/or don't want to sell it, right?

Danny Ocean:
But surely that can't work if the shareholder is the manager and/or don't want to sell it, right?

Correct, but you don't see "hostile takeovers" of privately held companies, which is the type you're describing. TT is publicly held, which means that shares are available on the stock market and shareholders can sell their shares to whomever they wish. A successful hostile bid can buy enough of these free-range shares (and votes) to win a stockholder's vote on whether to sell out or not, if I understand it correctly.

-- Steve

Danny Ocean:
I don't get the concept of a 'Hostile Takeover'

How can a company buy out another company without the other company consenting to it?

Simply by buying a huge lot of stocks and becoming de facto the biggest shareholder, effectively owning the company, instead of negotiating agreements, it's a basic fact of the stock market, if I buy all your shares, I'm not merging with you, I'm litteraly eating your company.

Now, knowing that CEOs are appointed by shareholders, if they decide they prefer EA's large reasure chests full of gold to TT's dividends, basically TT is sacrificed by the shareholders to their interest.

Stocks always drop after failed takeover/merger negotiations. Value will go back up, and T2 will be all the better for it as EA's stock dives based on crap games more often than not, and not being associated with EA will spare Take2 from that fall.

Sucks that their stock dropped, I don't know much about the gaming bussiness but i'm happy EA don't have a hand in Grand Theft Auto.

When it comes to creative works like books, comics, movies and games there is more than money to consider. This is why I don't like the stock market in general : P

Two words. Aaaaaah, gutted. :)

T2 should buy out EA and get them to make some decent games, without DRM.

Not very likely, sadly...

The_root_of_all_evil:
Two words. Aaaaaah, gutted. :)

T2 should buy out EA and get them to make some decent games, without DRM.

I love that idea.

Dectilon:
When it comes to creative works like books, comics, movies and games there is more than money to consider. This is why I don't like the stock market in general : P

The shareholders don't necessarily have to interfere with the game design itself. And someone has to pay the workers...

Dectilon:
When it comes to creative works like books, comics, movies and games there is more than money to consider. This is why I don't like the stock market in general : P

You can look at it that way, but... have you ever read pseudo-video game novel Lucky Wander Boy? There is a scene that discusses pretty much what you're talking about. The gist of it is that any piece of media that you have ever loved or found meaningful was only brought to you because some venture capitalist thought that he could make more money by selling it to you than he spent in buying the rights. That outlook might be a bit overkill on the cynicism, but it isn't far off.

Well now I've gotta go buy a crate full of GTA:IV to keep the guys up and runnin'.

Everyone, let's go buy Take Two stocks!

Screw that, if I had money for stock purchases, I'd buy into 3D Realms. It's high risk, but if DNF ever does hit the shelves, good or bad, people will buy it just for the sake of finally haveing Duke Nukem Forever. So buy 3D Realms while the price is so low, they'll practically pay you to take some.

Anton P. Nym:

Danny Ocean:
But surely that can't work if the shareholder is the manager and/or don't want to sell it, right?

Correct, but you don't see "hostile takeovers" of privately held companies, which is the type you're describing. TT is publicly held, which means that shares are available on the stock market and shareholders can sell their shares to whomever they wish. A successful hostile bid can buy enough of these free-range shares (and votes) to win a stockholder's vote on whether to sell out or not, if I understand it correctly.

-- Steve

I don't see what would prevent private holdings from failing to the golden siren if a big shiny bill was agited in front of the nose of private shareholders. It's just that it would happen behind the scenes. The principle would be the same.