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Tech Check
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If Electronic Arts' [ERTS
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] unsolicited bid for Take-Two Interactive [TTWO
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] sounds a lot like Microsoft's [MSFT
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] unsolicited play for Yahoo [YHOO
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] — complete with both EA and Microsoft ultimately walking away — think again.
It's only a little bit surprising that EA walked, mostly because Take-Two was in a far stronger negotiating position than Yahoo.
EA announced Sunday that it would cease discussions with Take-Two, capping nearly seven months of back-and-forth between the two gaming titans.
In an EA statement released Sunday, the company claims to hold Take-Two in "high regard," at least so far as its creative team is concerned. It says it's backing away "after careful consideration, including a management presentation and review of other due diligence materials provided by Take-Two Interactive Software Inc."
John Riccitiello, Chief Executive Officer of EA, said in the statement: “EA is tracking toward a record-breaking year. We’re launching 15 new games, including award-winners like SPORE, Dead Space and Mirror’s Edge, great new titles from the Sims, new family titles with Hasbro, and the highest quality slate of EA SPORTS titles on this generation of consoles. We’re also expanding beyond our core business with a series of direct-to-consumer launches including Warhammer Online.”
That all sounds great. But a couple of things to consider: if EA is tracking such a phenominally successful year, why the hostile bid for Take-Two in the first place? Seems like we're not getting the full story here. Also, what was in Take-Two's due diligence that ultimately contributed to EA abandoning its offer? No clear indication on that front either.
The fact is, unlike Yahoo, Take-Two had been dealing with EA from a legitimate position of strength. The company could afford to fend off EA's overtures because Grand Theft Auto continues its dominance. Yahoo's fading brand and stock price made blustery protests of a 70 percent premium from Microsoft as being "undervalued" ring hollow. Not the case at Take-Two.
So while Yahoo will be looked at as squandering an opportunity to maximize shareholder value, even though it claimed it was doing the exact opposite by holding out for even more, Take-Two could be perceived as actually acting in its investors' best interest by holding out for more.
Meantime, I would still love to know if there was anything in Take-Two's due dilligence that scared EA away; or whether EA discovered what Take-Two was claiming all along: that the price EA was willing to pay was woefully short, and EA realized it simply couldn't afford to spend more.
I spoke to a couple of sources close to EA who laughed off the notion that the company discovered something that would suggest it did indeed undervalue Take-Two. These sources also told me that a deal seven months ago made infinitely more sense than a deal would today because of the ever-strengthening product pipeline at EA; the strongest in the company's history, they say.
Time had always been of the essence for this deal, they say. But I still have to wonder why the company was so quick to want to spend this kind of money, in a hostile bid no less, when the roadmap then should've looked much as it does today.
As I've written before: EA needed Take-Two a lot more than than Take-Two needed EA.
Questions? Comments?
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