Game Maker EA's Take-Two Bid Now Hostile

The heat is on: Electronic Arts Inc.'s $2 billion bid for "Grand Theft Auto" maker Take-Two Interactive Software Inc. turned hostile Thursday as EA took its $26-per-share offer directly to Take-Two shareholders.

The tender offer expires on April 11, more than two weeks before the latest "Grand Theft Auto" hits store shelves. The wildly popular series, where players complete crime missions to get ahead in a gritty underworld, has sold 65 million copies and is considered one of the most successful video games in history. It's also Take-Two's main source of revenue and expected to bring in as much as $1.4 billion this fiscal year.

New York-based Take-Two has consistently rejected the bid since late February, calling it the wrong price at the wrong time. On Thursday, its board asked shareholders to wait 10 days while it reviews the offer.

EA's chief executive, John Riccitiello, said timing is crucial for the deal.

"We are counting on being able to achieve revenue synergies by the holidays," he said in an interview. EA wants to use its marketing prowess to sell more of Take-Two's games in the winter shopping season, when video game companies make the most of their money.

Take-Two's shares have been trading slightly below the offer price, and its two largest shareholders, Oppenheimer Funds and FMR LLC, have substantially reduced their stakes in the company, a sign they may not expect the bid to go higher.

"They made a realistic assessment," said Wedbush Morgan analyst Michael Pachter. "They took their money and ran."

Analysts have said the offer may increase, but likely not above $27. Even the $26-per-share bid was nearly 50 percent above Take-Two's stock price before EA's bid became public on Feb. 24.

Take-Two has said the offer doesn't value the company's creative talents _ most notably "Grand Theft Auto" creator Rockstar Games _ and its management's turnaround efforts.

Chairman Strauss Zelnick and CEO Ben Feder took Take-Two's helm last spring after a shareholder coup ousted top executives and most of its board over poor financials and legal troubles.

Several former Take-Two executives, including former Chairman and CEO Ryan A. Brant, pleaded guilty in 2007 to falsifying business records in connection with a probe into backdated stock options. Take-Two is still dealing with a stock options investigation, as well as subpoenas it received in 2006 form the Manhattan District Attorney over hidden sex scenes in an earlier version of "Grand Theft Auto."

During a conference call Tuesday following better-than-expected first-quarter earnings, Zelnick said Take-Two has done its restructuring "and we think we have a very lean and efficient organization."

Whether it's worth more than $2 billion is yet to be seen.

"What Take-Two's management doesn't understand is that people who own their stock bought it for one reason and one reason only _ to sell it at a higher price," Pachter said. "Investing is a coldly rational, brutal business, these are not cheerleaders."

Riccitiello emphasized that he still sees the bid as a friendly offer that would benefit not only Take-Two's shareholders but also its development studios, many of which have gone through some rocky times at the company, including six CEO changes.

Since taking EA's helm more than a year ago, Riccitiello has reorganized the company into a "city-state model," with four divisions and distinct, independent studios that seek to give game developers more autonomy than what is typical for large publishers. He's said the structure is inspired by Rockstar Games.

Buying Take-Two would give EA access to some of the video game industry's strongest creative properties, not only "Grand Theft Auto" but also "BioShock," a critically acclaimed first-person shooter that has sold 2 million copies and won numerous awards.

Take-Two's sports business, which hasn't been making money, is also valuable to EA because it would give the publisher of the blockbuster "Madden NFL" series a near-monopoly on sports games.

EA's offer for Take-Two follows Vivendi SA's plan to buy Activision Inc., its biggest rival. That deal is expected to close in the first half of this year, creating a publishing powerhouse that will own the wildly popular "Guitar Hero" franchise as well as "World of Warcraft," the world's biggest multiplayer online game.

Take-Two's shares climbed 72 cents, or 2.9 percent, to $25.63. EA's shares rose 18 cents to $47.41.