Why Activision Should Buy Take-Two

By James Brightman

With Activision killing Guitar Hero, True Crime and others and doubling down on Call of Duty and Blizzard titles, it’s clear that the publisher could benefit from some more great IP. Although Activision does have a 10-year deal with Bungie, ultimately that’s Bungie’s IP to keep. The best way for the cash rich company to gain more properties, of course, is through acquisition. Sterne Agee analyst Arvind Bhatia argues that Activision would do quite well to pick up Take-Two.

“We think such a combination would be positive for both companies,” he said. “Activision will benefit from taking control of several proven intellectual properties at Take-Two such as GTA, Red Dead, Max Payne, BioShock, Mafia, civilisation, Midnight Club and new, upcoming properties such as L.A. Noire and Agent. (Yesterday, Game Stop announced that based on pre-orders, L.A. Noire was ‘shaping up to be one of the most anticipated video games in the first half of 2011.’). It would help Activision diversify its portfolio, which has recently become too concentrated following the cancellation of titles such as Guitar Hero, Tony Hawk, True Crime (competitor to GTA) etc.”

He continued, “Take-Two will benefit from being part of a large entity with deep pockets—a must in the next generation cycle when rising development costs will make it more difficult for smaller players to thrive.”

Bhatia presented a low case and a high case, which yielded a price range of $19-$24 ($1.9B-$2.4B) for Take-Two. That would represent a premium of 21% to 53% from current levels. “Activision’s balance sheet is strong and includes $3.5B in cash and no debt. We think an all-cash deal or a predominantly cash deal with some stock component is possible,” he said.

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