What is Electronic Arts thinking? The video game giant says it wants to buy Take-Two Interactive, the company behind the Grand Theft Auto franchise, but it doesn’t seem like it’s in any hurry. Since making its original offer in February, EA (ERTS) has lowered its bid, then continually extended its offer, even though Take-Two (TTWO) management and shareholders have been holding out for more money.
Here’s a theory that’s been making the rounds recently, and which makes sense to us: EA will be bailing out very soon. It’s only sticking around for the time being, the argument goes, because it’s waiting for Federal regulators to sign off on a theoretical acquisition. And that approval should be in the works, since Take-Two decided last week to cooperate with the FTC and avoid a court date.
What happens once EA gets Hart-Scott clearance? In theory:
- EA makes one last now-or-never offer to TTWO shareholders, perhaps for a bit more than its current $25.74.
- Then it walks away.
- Then TTWO shares plunge back into the teens, where they’d been prior to EA’s original bid.
- Then EA comes back in a few months, or later next year, and makes a similarly sized offer, which desperate TTWO owners agree to right away.
This theory is predicated, of course, on the notion that some other buyer doesn’t step in. And Take-Two keeps suggesting that it is, in fact, talking to other buyers. But unless they can produce said mystery buyers at some point, it’s hard to believe that any of the talks are serious. And who would be a serious buyer for Take-Two?
Among the pure-play video game companies, only Activision (ATVI) seems to have enough scale to make a run at a $2 billion-plus deal. And Activision is currently digesting a very big, very complicated merger with Vivendi’s Blizzard unit.
What about the big media conglomerates? Aren’t they desperate to get into games? Sure they are. And we bet a couple of them are definitely tire-kicking right now. But we think they’re unlikely to make a deal. Disney (DIS), for example, makes a lot of sense — except for the part where Mickey Mouse’s image is irreparably soiled by association with a video game where you can pay hookers for sex, then kill them and get your money back. Time Warner (TWX) can also afford Take-Two. But it looks most interested in spending cash on cable channels. Etc.
sceptics will argue that EA doesn’t have that much leverage here, since only a small per cent of shareholders have actually tendered their shares so far — ie, no one wants their offer to begin with. The counter-argument: There’s no reason to tender shares until EA finds out if gets antitrust clearance on the deal. When that happens, this saga should come to a quick resolution, one way or another.