EA's Bid For Take-Two: Desperate Measure At Desperate Time
Electronic Arts is desperate; and desperate times call for desperate measures. Look no further than the company's multiple bids for Take-Two Interactive, a company with such a checkered financial past, pandering to the lowest common denominator of entertainment, but that apparently commands a 64 percent premium that in Take-Two's estimation still isn't enough.
EA is now offering $26 a share for Take-Two, a bid that the company apparently spurned on Friday, leading to EA's public disclosure of the negotiations yesterday. If it sounds a little like Microsoft/Yahoo redux,you're right. And in the same way that Microsoft CEO Steve Ballmer praised Yahoo's engineering talent, hoping to head off a mass exodus, EA's CEO John Riccitiello did the same on his conference call earlier today, praising the team at Rockstar Games, the publishing label at Take-Two and what some in the industry call the company's crown jewel. It's not clear, however, whether the team at Rockstar would want to make the jump to Electronic Arts, especially since corporate cultures couldn't be more different.
The accusations are already flying: Take-Two claims EA is trying to be "opportunistic" by trying to snap up a company still in the throes of a turnaround that hasn't quite taken hold yet. Opportunistic because the hostile bid comes just weeks before Take-Two is set to release "Grand Theft Auto IV" on April 1, which promises a massive media blitz, and could mean a nice pop to the company's shares. Opportunistic because it comes as interest by other potential Take-Two suitors, News Corp. and Viacom, appears to be waning.
But you can't blame a company like EA for trying. The fact is, EA has key licenses with the NFL and its "Madden: 2008" franchise is huge. Same goes for the success enjoyed by its pro soccer partnership with FIFA. And of course its relationship with Tiger Woods. NASCAR, the NCAA too. Sports has been EA's bread and butter. But beyond that, the company's been struggling.
Like Take-Two, EA has been trying to re-invent itself, and John Riccitiello taking over the company was a key step in that direction. So was his first major deal: the $860 million acquisitions of Bioware and Pandemic from his former partners at Elevation Partners. But that's where the story stalls, and where the real questions begin. And that's why the deal for Take-Two is potentially so important; just as Microsoft's play for Yahoo is so important if the company wants to see revenue streams above and beyond existing core businesses. Like "Grand Theft Auto" and "Manhunt" or not; the fact is, they are money-makers. "Manhunt" is now available on Nintendo's Wii, and could give EA another big opportunity on the industry's hottest platforms, above and beyond Madden and its Sims franchises.
Yet I circle back to how desperate this move could truly be: the cultures of these companies could not be more different; the titles and libraries could not be more different; the integration issues--should a deal get done--could not be more difficult. Despite all those challenges, EA is still willing to come up with a 64 percent price premium. EA needs Take-Two more than Take-Two needs EA, at least today. I think a deal gets done; but unlike Yahoo, Take-Two can afford to bide its time for a higher price, at least a little while longer.
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