Take-Two calls EA buyout offer 'undervalued'

Earlier today, Electronic Arts revealed it had made an all-cash offer of nearly $2 billion to acquire rival publisher Take-Two Interactive. Take-Two's board of directors rejected the proposal, leading Electronic Arts to go public with the deal today to inform the Grand Theft Auto IV publisher's shareholders exactly what their corporate leadership is passing on. Take-Two has responded this afternoon with its own announcement to explain why the directors had balked at the proposed acquisition, saying neither the time nor the price was right.

"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," explained the publisher's chairman of the board, Strauss Zelnick. "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."

Take-Two said the proposal "substantially undervalues" its franchises, creative talent, and consumer loyalty. As for the timing, the publisher suggested its rival was trying to ride the coming wave created by the Take-Two-owned Rockstar Games' Grand Theft Auto IV, which should arrive in stores on April 29.

"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," Take-Two said in a statement. "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."

Despite the tough talk, Take-Two didn't rule out the possibility of an acquisition at a slightly later date. The publisher said it was willing to start a dialogue with EA to see if they could agree on a price, but that it would defer such discussions until after the release of Grand Theft Auto IV.

"[We] offered to initiate discussions with EA on April 30, 2008 (the day after Grand Theft Auto IV is scheduled to release)," Zelnick said. "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."

Zelnick also expressed other concerns in a letter sent to EA CEO John Riccitiello on Friday and reprinted in today's announcement. Specifically, he questioned the impact such an acquisition would have on developers fearful of layoffs and studio closures.

"[As] we have all seen time and again, the process surrounding acquiring a public company from start to finish is complex, uncertain, intrusive, and distracting," Zelnick said, "and we believe it would be especially so to the creative artists at the core of our business and to all those who may be displaced by a transaction."