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Waitin' Until Friday: Where Things Stand On EA-T2

The deadline for Electronic Arts' bid to acquire Take-Two is this Friday, May 16th, so we thought it'd be a good time to review what we've learned so far to see where things currently stand.

First off, there's no shame in being the type whose eyes glaze over every time you hear something to do with "the market" or "analysts" or "diluted shares," and since this ongoing saga contains these phrases at several junctions, you may want to start with the easy, albeit detailed, summary of the whole works we recently wrote for you.

Still with me? Hit the jump for your handy roundup of our recent coverage:

To summarise, EA believes it's made a "full and fair" offer for Take-Two at $US 26 per share; Take-Two says it's not enough, and that's where the two have stood ever since the offer was made in February. EA's initial deadline to seal the deal expired on April 18th; EA then modded its offer with an extension that will hold them until Friday.

A couple of things have changed since the saga began. First, many expected the record-breaking release of GTA IV to be a game-changer; it wasn't, despite what Take-Two board chairman Strauss Zelnick said, save for a handful of change gained on Take-Two's per share price, which has been vacillating around the $US 26 price point since EA's offer. Before EA made its bid, Take-Two seemed stuck at $US 17 a share.

Second, EA's $US 2 billion dollar offer is now worth less per share than it was at first, thanks to some extra shares handed out as part of Take-Two's management compensation package. The new $US 25.74 per share price is due to dilution, not a reduction on EA's part - but it still presents an additional obstacle, considering that Take-Two's stock has remained higher than that for a few weeks now.

Both companies are taking a hard line, and all tricky issues of monetary valuations aside, each has a valid viewpoint. Zelnick believes Take-Two's current lineup and stable of talent gives it much more value than the EA bid gives it credit for, and he made an uncharacteristically impassioned plea to this effect during Take-Two's annual shareholder meeting.

EA, on the other hand, is playing it cool, noting during its own annual meeting yesterday that its sports portfolio is robust, its "city-state" label structure is diverse, and that it has no need to break its back to gain Take-Two. EA has also said repeatedly that the longer this battle goes on, the less it's all worth to them, despite feeling that Take-Two's are "some of the best studios in the world."

Most recently, EA borrowed $US 1 billion in extra capital from several lenders to afford them "maximum flexibility." Following that announcement, Take-Two's stock made a climb to $US 27 per share, indicating investors feel EA's bid looks likely.

Cowen and Co. analyst Doug Creutz recently put the odds of the deal going through at 80/20, for example, provided EA raises the offering price one more time. Wedbush Morgan's Michael Pachter doesn't think EA needs to offer more money without negotiating first, but both analysts agree that the deal has too much upside for both parties to walk away.

Will the delay-despising EA extend its offer once again at the end of this week, or will it extend and raise it, as some analysts have told us they must - and can afford to? We'll see.

8:20 AM on Thu May 15 2008
by Leigh Alexander

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