This morning we reported on SEC filings (yes, there have been enough SEC filings to wallpaper my apartment this week) that revealed that Electronic Arts has amended its offer to purchase Take-Two. The previous offer expired today, but EA's back for round two, extending its deadline to May 16th. Although some analysts have speculated that EA would need to raise its offer in order to cinch this acquisition, the same SEC filing also shows that some change has actually been shaved off of the previous bid of $US 26 per share - the new bid is $US 25.74 per share.
Why, then, is the bid lower? Well, it's not because EA docked it. Last night, about an hour after Take-Two's annual meeting, the results of the vote that took place were announced, and as it turns out, Take-Two shareholders approved the extra cash and the 780,000 shares that the management team was seeking. The approval of that compensation package dilutes EA's offer - more stock equals less value per share - but many current shareholders were not allowed to vote last night. Only those who bought Take-Two stock prior to February 19th got a say - even if they don't own any stock anymore. In other words, Take-Two itself reduced the per-share value of EA's bid, even though the aggregate amount of the offer hasn't changed.
We'd heard some rumours out of Asia that this deal was already sealed behind the scenes, but when we spoke to Owen Mahoney, EA's senior VP of Corporate Development, he stated, "It's not in the bag." We also heard from Take-Two this morning that only 8.3 percent of total shares had been sold to EA.
Where does EA stand, then? Mahoney tells us the clock is ticking for this deal. Hit the jump for our full interview, plus comments from Strauss Zelnick on his side of things.
Yesterday it was announced that the Federal Trade Commission wanted to further investigate the deal to evaluate potential antitrust issues. Like Take-Two, Mahoney says EA is cooperating fully, and extended the deadline of its bid in order to allow plenty of time.
However, said Mahoney, "The thing for us is that further delays... could affect the value of our offer."
EA continues to believe that the longer this fight drags on, the less the deal will be worth. We asked Mahoney directly whether he'd increase the offer — while he declined to speculate on possible future decisions, he stressed, "I'd say that our offer... is very full and fair. We think it's a great opportunity for [Take-Two's]shareholders, for the employees, and for our shareholders. It was a huge premium on the unaffected price of the company."
After all, EA's got investors to answer to also, and must be careful about volunteering more money without good negotiation taking place first. "Our board expects us to be very price-disciplined," said Mahoney.
Analysts have told Kotaku that most investors already believe in the potential of GTA IV, and that their anticipation for a huge first week of sales is already reflected in the current share price, and EA agrees. However, what if the unexpected occurs, and Take-Two's stock does rise after the release of GTA IV? Said Mahoney, "I'd say that's a short-term event, if that does happen. All I can speak to is what we think is appropriate for our sholders. $26 is a very full and fair price and... we intend to be price-disciplined because [our]board has made that clear."
Moreover, EA says this offer isn't predicated on the value of one launch, or even one franchise. Said Mahoney, "We're talking about people... all of the thousands of developers all over the world who are creating great franchises, several wonderful studios and.. they've got some fantastic IP. But [GTA is]only one in a whole, broad range of wonderful assets."
Speaking of wonderful assets, we asked EA directly to respond to some of the gaming community's fears that EA might repeat some past mistakes and quash this studio talent, in the event that the takeover is successful.
"That was ten years ago," said Corporate Communications VP Jeff Brown. "Granted, since then, we've done Pandemic, BioWare, we've done DICE, Criterion and Mythic and I would encourage you to call those guys. They're pretty happy. If you want to go back to Westwood back in nineteen-ninety-frickin'-seven, then yeah. We blew it. The point is, we've done Maxis and we've just celebrated 100 million units sold of The Sims. Ask those guys if they're happy working for EA."
The bottom line, said both executives, is that it's the talent that's vital to them in any deal, and that ultimately when they invest in a studio, they invest more than just money. Added Mahoney, "When we're looking at companies, one of the things that really factors heavily into our thinking is the quality of management and the teams creating IP. We have to believe... they can run some larger portfolio than they're currently running."
As an example of the company's broader approach to acqusitions, he mentioned Patrick Söderlund, CEO of Battlefield series developer Digital Illusions before that studio was acquired by EA. "Since coming to EA, he's taken on a larger and larger portfolio, and we've invested many millions in the Battlefield franchise. We believe that... people who are the creative leaders and who are leaders of those studios... what we're looking for is people who are going to be doing larger things than they're currently doing. We feel strongly about those people, we felt strongly about them when we approached them to acquire them and our objective is to invest behind them and make them bigger than before we bought them."
So what about the Take-Two deal? We asked EA what they were ready to do next. Though Mahoney could not comment on future plans, he stressed, "One of the things we're here for is we feel these are some of the best studios in the world."
So will the company keep going for Take-Two and try to get this deal done? Yes, says Mahoney — but with a caveat. "Any delay that we get, whether that's from regulatory or management [issues] , is going to affect the value in the certainty of our offer."
This morning, just after Electronic Arts extended its deadline for its bid to acquire Take-Two, Take-Two confirmed just how many of its shareholders had sold to EA. 6,432,787 shares total were tendered, which may sound like a big number, but it's only 8.3 percent of the total of outstanding shares.
Said Board chairman Strauss Zelnick in a public statement, "The minuscule number of shares tendered, as well as the strong vote in favour of the proposals presented at our annual meeting, offer indisputable evidence that our stockholders regard our efforts to enhance Take-Two's stockholder value as superior to the EA offer."
Zelnick reiterated the same statements he made during the annual meeting, that EA's proposal undervalues Take-Two, adding, "It undervalued the company at $26 per share, and it certainly undervalues Take-Two at $25.74." He again urged shareholders not to tender shares to EA, and promised the company is exploring all of its options to maximize shareholder value, including either remaining independent or considering purchase by another third-party.
Finally, he stressed once more that he would enter discussions with interested parties — including EA — after April 30th and the launch of GTA IV. Concluded Zelnick, "The Board continues to believe that we will be best positioned, from the perspective of both value and timing, to move forward at that time. We are confident in the significant growth potential of Take-Two and in the unique value of our business given our strong position in this dynamic industry."