http://kotaku.com/360123/ea-makes-offer-to-buy-take-2 http://kotaku.com/360133/ea-or-not-ea-+-the-take+two-question http://kotaku.com/360147/the-take+two-letters-ea-rejected Electronic Arts just called me to let me know that they are making a bid to acquire Take-Two Interactive in an all-cash merger of about $2 billion. The offer set Take-Two's stock at $26 per a share, about 64 percent over the company's closing stock price prior to the company's Feb. 15 offer. Take-Two's board rejected the offer, leading Electronic Arts to make their offer public to the company's shareholders. In the letter, attached in the jump, EA CEO John Riccitiello tells Take-Two's Stauss Zelnick that the buy-out would help both the company and its stock holders: Our all-cash proposal is a unique opportunity for Take-Two shareholders to realize immediate value at a substantial premium, while creating long-term value for EA shareholders. Take-Two's game designers would also benefit from EA's financial resources, stable, game-focused management team, and strong global publishing capabilities. ... There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today. Specifically, the letter mentions that EA could really help out with the launch of GTA IV. Hit the jump for the full letter and check back later to read our interview with Riccitiello. Updates: EA CEO/ Take-Two Chairman Talk Take Over Bid The Take-Two Letters: EA Rejected EA or Not EA: The Take Two Question February 19, 2008 Mr. Strauss Zelnick Executive Chairman of the Board of Directors Take-Two Interactive Software, Inc. 622 Broadway New York, NY 10012 Dear Strauss: Thank you for your letter of February 15, 2008. While I appreciate its courteous tone and value our ongoing dialogue, I am disappointed that you have rejected Electronic Arts Inc.'s ("EA's") $25 per share cash offer to acquire Take-Two Interactive Software, Inc. ("Take-Two") and declined to engage in the friendly negotiations we proposed. We continue to believe that an acquisition of Take-Two by EA is in the best interests of your shareholders, employees and other constituents, and we remain interested in acquiring Take-Two. So, to further demonstrate our seriousness and encourage you to move forward now, I am writing to increase EA's offer to acquire all of the outstanding shares of Take-Two to $26 per share in cash. This offer is subject to Take-Two agreeing by February 22, 2008 to commence negotiation of a definitive merger agreement and to permit EA to commence a limited due diligence review of Take-Two. Our revised all-cash offer represents a 64% premium over Take-Two's most recent closing price and a 63% premium over Take-Two's 30-day trailing average price (based on prices as of market close on Friday, February 15th). We believe our offer represents a unique and compelling opportunity for Take-Two shareholders to maximize the value of their investment in the company, with materially lower risk than if Take-Two proceeds on a stand-alone basis. We also believe that the transaction we are proposing represents a uniquely attractive opportunity for Take-Two's creative teams and key employees. EA is a diversified leader with well-established franchises and proven intellectual properties, global reach, and significant financial resources. I know we both agree that Take-Two's talented creative teams deserve a permanent home within a stable and growing publisher that provides these teams an environment to do what they do best - create great games. EA is organized in a four-label model that provides our creative teams the autonomy they need to fully realize their creative ambitions, while also providing a stable and supportive corporate and publishing infrastructure which allows them to best address the global marketplace. We have the resources to make the significant investments in technology and infrastructure needed for the most creative and innovative games in the industry. In short, a combination with EA would provide Take-Two's studios and employees a combination of the right resources for investment and global reach, and the right environment to do their best work. We believe that Take-Two's shareholders would not be well-served by any further delay in negotiating and completing the proposed merger. While the videogame industry remains an attractive, high-growth business, the challenges and risks in the business are escalating, and the need for scale is becoming more pronounced. Despite steps taken since March 2007, Take-Two remains dependent on a limited number of titles, and has limited capital resources. In addition, Take-Two faces ongoing financial, legal and operating issues and a very intense competitive environment. Given these factors, we believe it will be increasingly difficult for Take-Two to create sustainable shareholder value and that Take-Two remains exposed to considerable risk of value loss. We also believe that any delay in this proposed transaction works against the interest of Take-Two's shareholders, because: -- There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today. We place significant value on the ability to close the transaction relatively quickly so that EA's strong publishing and distribution network, including our global packaged goods, online and wireless publishing organizations, can positively impact the catalogue sales of GTA IV and also the launch and sale of titles released later this year. We want to work with you and your team to complete the transaction in time to begin realizing its significant marketplace benefits in advance of this year's holiday selling season. -- We believe Take-Two's current share price already reflects investor expectations for a strong release of GTA IV as well as the longer-term issues that Take-Two faces. Once GTA IV ships, Take-Two will again be dependent on less-popular titles and face increasing challenges to compete with larger and better-capitalized competitors. -- With GTA IV shipping on April 29, development on this important title must now be essentially complete. We believe now is the right time to complete a transaction with minimal disruption for Take-Two. We also believe the transaction we are proposing will create value for EA's shareholders. In addition to the top-line benefits noted above, we can achieve bottom-line benefits by combining Take-Two's and EA's corporate and publishing infrastructures and by optimally supporting Take-Two's creative teams and intellectual properties in EA's decentralized label structure. Considerable thought, time and resources have been put forth in developing this offer, and our Board of Directors unanimously supports it. Our offer is not conditioned on any financing requirement. It is subject to the satisfactory completion of a due diligence review of Take-Two, the negotiation and execution of mutually acceptable definitive transaction agreements, and the satisfaction of customary conditions to be set forth in such agreements. We are prepared to move forward immediately with formal due diligence and the negotiation and execution of a definitive merger agreement and believe that with adequate access to the necessary information and people, we can complete both in approximately two weeks. We believe that our due diligence review can be completed with minimal disruption, requiring only limited access to a small number of senior executives of Take-Two and its legal, accounting and financial advisors. We also have prepared a draft merger agreement that we can forward to you immediately. Our strong preference is to conduct a private negotiation. If you are unwilling to proceed on that basis, however, we may pursue other means, including the public disclosure of this letter, to bring our offer and the compelling value it represents to the attention of Take-Two's shareholders. I am available to meet and discuss any and all aspects of this proposal with you and your Board. Again, we believe this proposal represents a unique opportunity to maximize value for Take-Two's shareholders, and that the combined enterprise would be extraordinarily well positioned to build value for our respective customers, employees, developers and other business partners. We hope that you and your Board share our enthusiasm, and we look forward to hearing back from you by February 22.
Part 2 So EA wants to buy Take-Two Interactive, to the tune of $2 billion, and while to a certain degree I agree with EA's CEO John Riccitiello - this would be a major win for Take-Two stockholders, who've hung on for a rather bumpy ride over the past few years, I'm not sure how good it would be to the people who really matter to us here at Kotaku - the gamers. I thought I would take a look at the pros and cons of such a massive purchase, and then let you folks discuss it a bit as well. Imagine a squiggly, screen-distorting dream sequence effect here as we ponder the question, "What if Take-Two agreed to an EA buyout?" What EA Would Gain First, let's put things into perspective from a game standpoint. What games are we talking here? Well EA would of course get Rockstar, which means Grand Theft Auto would be theirs, along with Midnight Club and Manhunt - though at this point it's probably best to toss that one out the window. Then there's 2K Games, which would give them BioShock and the upcoming games Mafia 2 and Borderlands - not a bad haul. EA would also suddenly own Firaxis - and thus every game with a Sid Meier in front of it - Civilization, Pirates, etc. That's an awful lot of property there, isn't it, and that's not even considering the 2K Sports situation, which brings us to... The Cons 2K Sports No More - EA certainly isn't going to compete with themselves, are they? I see no reason for their to be a 2K Sports label anymore when EA Sports would do so nicely. This means whatever is left of the 2K Sports games - NBA, NHL, MLB, and College Hoops - gone. Remember how we worried when EA announced they had signed an exclusive deal with NFL? This would wipe out their major competition in one fell swoop, while filling in a few holes with games like Top Spin. Not good. Attack of the Sequels 2008 - A Grand Theft Auto game right now comes along every few years, completely knocks us on our asses and then goes back to the drawing board, lurking in the shadows until they are damn well ready to knock us on our asses again. Can you imagine what EA would do with this franchise? Maybe not a new one every year, but spin offs, alternate reality versions, etc. With the resources at their disposal, we'd see GTA everywhere - even moreso that we will this April - until we are completely sick of it. Then we'll see it some more. In our earlier interview with Riccitiello, the EA CEO addresses this concern by pointing out last year's reorganization, which placed greater emphasis on the developers over the EA brand, but I cannot honestly see how they could resist milking GTA for all it's worth. Goodbye Free Downloadable Content - Remember that nice chuck of free DLC Take-Two released for BioShock at the end of last year? How much do you think EA would have charged for it? My guess? More than free. I'm imagining new car packs for Grand Theft Auto for 500 points a shot here. Maybe even some costly DLC that makes some of those EA Sports titles play like their often superior 2K counterparts! That would just be completely awesome. Lower Quality Standards - Aside from some of the issues with BioShock, Take-Two developers generally take their time with their products, making sure everything is polished to a fine shine before passing it onto the consumer. EA isn't so bad when it comes to quality, though nowhere near Take-Two standards. A bigger company with strict deadlines makes for mistakes...it happens. GTA: Brought To You By Axe Body Spray - Simply put, EA believes in in-game advertising. Not just signs, but product placement in every location possible. From road signs to the brand of cell phone your character uses, the clothing he or she wears and the cars he or she drives. Imagine Grand Theft Auto with all the cute, fictional radio ads replaced with advertisements for real-world products. Imagine stopping by Pizza Hut to replenish your health before heading off to Old Navy to pick up a fleece hoodie. Imagine hell. Eerily similar, yes? That's plenty of negative points, but what about the positives? The Pros Console Exclusive No More - This might be a mark in the cons category for many of you who still believe having a game only on your console somehow empowers you to be a dick in forums and blog comment sections, but I see this as a good thing. I own all three consoles, but I know plenty of people who don't. People who sunk all their cash into a PS3 and then sit around reading all of our stories gushing over BioShock before curling up in the corner and crying themselves to sleep. EA doesn't like console exclusives. EA would launch the next GTA for all consoles, including the Wii, DS, PSP, and mobile phones. Jack Thompson Versus EA - I would absolutely love for Jack to send a threatening letter to EA lawyers regarding a violent game release. They would devour him whole, and then make a game about it. Take-Two likes to play footsie with him because of the publicity he generates I'm sure, but EA don't play that. BioShock and System Shock - Having both of these franchises under one company could prove to be incredibly awesome. Imagine a Victorian steampunk BioShock sequel with ties to a brand new System Shock title? I know, two different franchise, two different realities, but hell. I can dream. I just think it would be nifty to have the two universes click together somehow. The Verdict So, what did I miss? As far as I can see that's five cons to 3 pros, and honestly that last pro was a bit of a stretch. Do I think Take-Two should allow EA to purchase them? No. I believe that Take-Two has the strength to carry on without EA interference. With games like GTA IV, Mafia 2, and Borderlands coming soon, as well as the closest thing EA has to competition in the sports arena, I don't think this is necessary at all, and from a gamer standpoint I think it would hurt Take-Two's properties more than help. Now on the other hand, were I a shareholder, the offer would sound mighty, mighty tempting to me right now...which is of course EA's plan. Here's hoping it doesn't pan out, and if it does...here's hoping I am wrong.
part 3 The Take-Two Board of Directors has released a long (long) response explaining why they have rejected EA's acquisition proposal. In short, they think EA's undervaluing Take-Two's worth. Included with the press release are several pieces of correspondence between the two companies regarding this proposed acquisition. Hit the jump for the full text from the Take-Two investor relations site: TAKE-TWO INTERACTIVE SOFTWARE'S BOARD REJECTS ELECTRONIC ARTS' UNSOLICITED PROPOSAL AS INADEQUATE New York, NY - February 24, 2008 --The Board of Directors of Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today confirmed that it has received an unsolicited proposal from Electronic Arts Inc. (NASDAQ:ERTS) to acquire Take-Two for $26.00 per share in cash. Take-Two's Board of Directors has thoroughly reviewed EA's unsolicited proposal with the assistance of its independent financial and legal advisors and concluded that the proposal is inadequate in multiple respects and not in the best interests of Take-Two's stockholders. After careful evaluation, the Board has determined that EA's proposal substantially undervalues Take-Two's robust and enviable stable of game franchises, exceptional creative talent and strong consumer loyalty. We believe EA's unsolicited offer is highly opportunistic and is attempting to take advantage of our upcoming release of Grand Theft Auto IV, one of the most valuable and durable franchises in the industry. Furthermore, the offer values the Company at a significant discount to its public peers and does not compensate Take-Two for its intrinsic value and the substantial synergies that the proposed combination would create. Strauss Zelnick, Executive Chairman of the Board of Take-Two commented, "Electronic Arts' proposal provides insufficient value to our shareholders and comes at absolutely the wrong time given the crucial initiatives underway at the Company. Thanks to the extraordinary efforts of our creative and business teams, Take-Two has made enormous strides in the past 10 months toward our common goal of being the most creative, innovative and efficient company in our industry. We're extremely proud of our unique portfolio of game franchises, exceptional creative talent and loyal consumer following. Our Board believes that we will build greater value for our stakeholders by remaining relentlessly focused on our strategy and delivering on our mission of making the highest quality interactive entertainment." Mr. Zelnick continued, "In addition to undervaluing key elements of our business, EA's proposal fails to recognize the value we are building through our ongoing turnaround efforts, which will further revitalize Take-Two. While we have made substantial progress already, the turnaround of our business which we initiated in June is not yet complete, and we believe its benefits have not been recognized in either our current stock price or in the value of EA's proposal." Mr. Zelnick added, "While the Board believes that entering into discussions with EA at this time is not in the best interests of shareholders, we had offered to enter into a good-faith dialogue with EA to determine if our companies can reach common ground on the appropriate value of Take-Two as a first step to realizing a mutually beneficially transaction. However, given the great importance of the Grand Theft Auto IV launch to the value of Take-Two, the Board has determined that the only prudent and responsible course for our Company and its stockholders is to defer these discussions until immediately after Grand Theft Auto IV is released. Therefore, we offered to initiate discussions with EA on April 30th, 2008 (the day after Grand Theft Auto IV is scheduled to release). We believe this offer demonstrated our commitment to pursuing all avenues to maximize stockholder value, while we believe that EA's refusal to entertain this path is evidence of their desire to acquire Take-Two at a significant discount, whereas we believe this value rightly belongs to our stockholders." Take-Two has a proven track record of creating and acquiring ownership of valuable new intellectual property. Grand Theft Auto is one of the industry's top franchises, having sold more than 65 million units to date. Over the past year, Take-Two has continued to expand its owned intellectual property portfolio, with two new franchises established - BioShock, one of the highest rated games of all time and winner of numerous "Game of the Year" awards, which has sold over 2 million units to date - and Carnival Games, a casual game for the Wii™, which has sold over 1 million units to date. Take-Two's other proven million-unit selling video game franchises include Midnight Club, Sid Meier's Civilization, Bully, Red Dead Revolver, Max Payne, Rockstar Games presents Table Tennis, Manhunt, Red Dead Revolver, Mafia, The Darkness, Spec Ops, Sid Meier's Railroads! and Sid Meier's Pirates! Take-Two also has powerful and growing sports franchises, with licenses for leading brands, including Major League Baseball? 2K, NBA? 2K and NHL? 2K, and proprietary sports brands, such as Top Spin, All Pro Football and Don King Presents: Prizefighter. Additionally, Take-Two has a partnership with Nickelodeon to publish video games based on top rated Nick Jr. titles such as Dora the Explorer and Go, Diego, Go! Ben Feder, Chief Executive Officer of Take-Two, commented, "The revitalization of Take-Two is well underway. In the last year, we have accomplished a great deal in terms of restructuring our cost base to improve margins, addressing the legacy issues that have weighed on our business, and enhancing our creative output through organic and external initiatives. We believe stockholders will reap the benefits of these actions both in the near and long term and that our efforts will create greater value for stockholders than what is being offered by EA at this time." As part of its turnaround plan, Take-Two has implemented a more streamlined and efficient operating structure, put in place a $25 million cost cutting initiative, instituted a disciplined Product Investment Review Process, restructured international operations to create a more efficient and responsive international organization, consolidated the majority of 2K Games and 2K Sports operations on the West Coast to increase efficiency and better support the growth of these labels, and sold its non-core Joytech business. To continue to position itself for the future, the Company has begun to more aggressively leverage potential growth opportunities, with the acquisition of Illusion Softworks development studio and the formation of the 2K Play label to focus on the family and casual games market. In addition, current management has secured a $140 million line of credit, announced a preliminary settlement of the "Hot Coffee" class action and made significant progress in resolving the New York District Attorney and SEC actions that have been pending against Take-Two since June 2006 and July 2006, respectively. Mr. Feder concluded, "We remain committed to executing our existing business strategy and turnaround plans and to building value for all of our stockholders. We intend to vigorously resist any attempt by EA to acquire Take-Two at a price that does not adequately value our Company and its growth opportunities." Bear Stearns and Lehman Brothers are acting as financial advisors to Take-Two and Proskauer Rose LLP is acting as a legal advisor. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. For more information, please visit http://www.transactioninfo.com/taketwo/ Take-Two's and EA's letters regarding the proposal are included below. (link's in 1st post) It looks like it won't happen till April/May despite today's rejection.
