Kotaku
Though we've had all eyes on the acquisition arm-wrestle between Electronic Arts and Take-Two ever since EA's bid went public on February 25th, things could start getting yet more interesting from here on out. Recall that Take-Two Board chairman Strauss Zelnick's been stonewalling EA, refusing to even discuss a possible combination until April 30th, after GTA IV's release. Well, then now could be the time, right?
Analysts, of both the professional and the armchair varieties, suspected that Take-Two's stock was set to take a big leap with the major title launch, thereby forcing EA to raise its offer. And it's true that Take-Two's stock has drifted up a little bit higher this week to over $26 per share by a handful of change, trumping EA's current offer of $25.74.
Talking to the New York Times recently, Strauss Zelnick says the increase proves the wisdom of his strategy. Some possible flaws in his logic, however, make the situation a little less clear-cut.
Zelnick told the Times:
"The critical and consumer response to Grand Theft Auto IV vindicates our strategy of waiting until the launch with regard to E.A.'s offer," said Strauss Zelnick, the chairman of Take-Two, in a statement.
Enthusiasm and high critical acclaim for GTA IV leading up to its launch has been unavoidable (as Kotaku readers have doubtless observed in spades). We haven't seen North American numbers yet, but we know it's broken records in the UK. With that in mind, though, wouldn't you expect to see a bigger price jump for the stock than just a little bit of pocket jingle?
Moreover, the increase in Take-Two's share price over the last week pales in comparison to the boost it saw following the EA bid; prior to that, it was trading at a much less-robust $17 per share. As of press time today, the stock has been malingering throughout the morning, sagging slowly back closer to the even $26 mark, and over the past few days, three major analyst groups - Citibank, Janco Partners and the Cowan Group - have downgraded their recommendations from "buy" or "outperform" to either "hold" or "neutral."
EA's Jeff Brown also talked to the NY Times:
"We've seen a share price above and below our offer and it doesn't change anything. We knew the game would be an extraordinary success," said Jeff Brown, a spokesman for Electronic Arts. "All of that was factored into our offer of $2 billion."
So one thing remains the same: Zelnick says EA's shafting him, EA says it isn't. Zelnick may feel vindicated while the stock is over $26 - but if the stock continues to slide rather than climb in the wake of GTA IV's release, as some analysts have suggested it might, he may need to reconsider. Neither Take-Two nor EA look about to blink in this staring contest, though.
Grand Theft Auto IV and Real-World Billions [NY Times]
Comments
An the start of a new dark empire continues to play out.
their stock has barely raised. their stock price already included high expectations for gta4. it happened, as expected. thus very little change has occured.
As a fan of Take-Two's games, it's sad to see this transaction going forward.
Sadly. the market doesn't look into what effect transactions will have on quality or consumer satisfaction. It's all about making money. The fact that Zelnick has managed to stall the sale for this long is impressive, but in the end will probably be futile.
He convinced shareholders that they could get more after GTA4 was released and if EA ups their bid just a few cents, consider this a done deal. Some may even go for it at the current offer.
Hooray capitalism...
Others have said it but just to reiterate: the market knew GTA IV would be a huge success and the stock price had already accounted for this.
At this point, something extraordinary will need to occur to keep elevating the stock, something the market did not account for. For example, if Take Two said that GTA IV only cost $1 million to make or every single copy on every single store shelf was sold out, then the market would react.
Zelnick's statements definitely follow generally accepted PR-speak, but the more I hear come out of his mouth, the more I wonder if Take Two succeeds in spite of his management.
EA buying Take Two is bad for gamers. I will never support this no matter who says what. Never.
This is all speculative...if I want stock advice, I'll see Motley Fool or other investment vessel sites.
As for their stock value, the market isn't adjusted, we are in approaching the middle of 2nd qtr, fed's dropped interest rate yesterday, barrel of oil still climbing, ... catch my point.
We are seeing one company try to acquire another, and not easily. Suits by a shareholder (tool of greed), EA's expansion, ... nothing new.
I'm more concerned over price of console games (STILL at list of $59.99) and price of gas. Let EA take over. What is the worst they can do, ruin gaming for us? Doubtful...
Take Two's stock value is only what it is because the EA offer is there. If withdrawn, you would see the stock price drop down to a steadier level where it was before.
EA GETS WHAT EA WANTS!!! NOM NOM NOM NOM...
The point is, it's simply too early to tell if Zelnick was right or not. It should take about a month or two for the stock to stabilize at equilibrium.
We're still in the 'release day' news mode. Then we hit 'sales records news' and 'backlash'. Why would the price drift up before the sales news?
As it stands, it seems as though EA, no matter their developing ability, have made some accurate predictions. I'll be impressed if the prices peak at no more than $28-$30 like they're expecting.
EA is holding all the cards here. Take 2 has had GTA long before this who buy-out thing started and yet they're still in this situation of being potentially purchased by another company. Zelnick wanted to wait until GTA IV shipped and that's fine, but the fact is this will wear off and Take 2 will then be in the situation of waiting another few years for the next GTA game.
They don't have enough outside of GTA to keep going, and they know it. At this point this isn't even about saying yes or no, it's haggling over price. I would say this is done and over with by June 1st.
I don't see anything too bad about ea acquiring take two. Everyone here is getting their panties in a twist over shit that hasn't even happened. Nobody knows exactly how EA might run things, and i don't think its fair for us all to just assume that EA is gonna run gta into the ground if they take over. Not only would that be bad for gamers, but it would be bad business. I'd like to think that they'd be smart enough to not mess with a good thing.
Then again i may be totally wrong and is the end of gta as we know it. Either way my point is that time will tell whether this bodes ill or well for our games.
I just want to jump in here and (gasp) defend Strauss Zelnick. Everyone is saying "the market has already adjusted for GTA4", yadda yadda yadda. Which is true -- but at TTWO's current risk-adjusted profile.
Take-Two, remember, is coming off of a massive accounting/management scandal (the reason Zelnick's group staged a shareholder coup and bought the company). That depressed the risk tolerance for investors with respect to the stock, because it became "shady", i.e. not a reputable, reliable company. Hence, its trading value, calculated as a multiple of earnings/sales/whatever metric you want to use, was slashed with respect to its peers in the industry. For example, using the forward P/E (price to earnings) ratio, which is one of the more basic ratios used to compare relative valuation, TTWO trades at about 16 times projected future earnings. ERTS -- a solid, reputable, more reliable company -- trades, however, at over 30x projected future earnings.
Zelnick's point is that if TTWO were valued using ratios more in line with its industry peers -- i.e. if the market were to believe that Zelnick and his group had rid the company of its demons and were poised to provide steadier product and profit streams in the future -- it would be reasonably be trading at around $45-50. THAT is why he insists that the stock is undervalued.
Were ERTS to purchase TTWO right now, the value of TTWO's assets would almost double in ERTS hands, solely because of the way ERTS is valued by the market. (This is the "accretive" value of the transaction to ERTS - the amount by which the acquired assets will jump in value because of the acquiror's more favorable ratios.) Hence, Zelnick is reluctant to advise shareholders to sell TTWO at fifty cents on the dollar.
this could be that last good GTA ...
at least Activision isnt picking up rights to GTA. Although I would like to see 'Grand Theft Auto: REO Speedwagon'
I'm a stock trader, and as of the time I'm writing this post TTWO is trading at 26.00. Sorry gamers (me), but the deal is inevitable
Wait this just in of the wire (Reuters):
Take-Two shares fall after analyst downgrade
SAN FRANCISCO, May 1 (Reuters) - Shares in Take-Two
Interactive Software Inc fell nearly 1 percent on
Thursday after an analyst downgraded the publisher of the
blockbuster video game "Grand Theft Auto 4" on concerns that a
buyout offer could fall through.
Kaufman Brothers analyst Todd Mitchell downgraded the stock
to "hold" from "buy," saying Electronic Arts Inc ,
which is trying to buy Take-Two for $2 billion, was unlikely to
raise its bid by more than a few dollars per share.
If Electronic Arts walked away from the deal, Take-Two
shares could fall as much as $7, Mitchell wrote in a report.
"Impressions from conversations (EA) management has had
recently with people with better access than us are that they
are pretty adamant about the value of Take-Two, and appear to
be conditioning investors to be prepared for them to walk away
if its offer is not accepted," Mitchell wrote.
Mitchell said his downgrade had nothing to do with sales of
"Grand Theft Auto 4," which hit store shelves on Tuesday and is
expected to rake in up to $400 million in first-week sales.
Buzz around the launch of the critically acclaimed title
pushed Take-Two stock to more than $27 a share on Monday, the
highest level since EA went public with its bid in late
February.
Some analysts had said the strong initial performance of
"Grand Theft Auto 4" could pressure EA to raise its bid, which
values Take-Two at $25.74 per share.
@Rurik: Exactly, no matter how band EA may seem it is still leaps and bounds better than Activision. Just look what they have done to Tony Hawk, Guitar Hero, and Call of Duty(Letting Treyarch work on COD5). At least EA lets Harmonix have creative freedom with Rock Band. If Activision was in control we would probably be up to RB 3 at this point.
The people who defend EA obviously haven't been paying attention or have a very short attention span.
EA has a marked history of ruining it's acquisitions. And it runs franchises into the ground just as bad as Activision.
What you should be considering more in your opinions is how they treat developers. Activision has a good history dealing with independent developers like id software whereas EA tends to dissolve studios and absorb assets into the borg like collective to work on another run-of-the-mill Need for Speed that they will ship with a handful of game breaking bugs and never patch after release.
Can anyone explain what happened on the 28th of February? I am not familiar with stocks but there was a volume of 34,000,000 traded that day, compared to a usual 3 million and the price jumped from 17 dollars to 25.
I'm not really surprised to see this happen. And per the earlier post about TTWO stock being risk-adjusted: I agree with you about that, but the whole thing hinges on the assumption that Zelnick HAS turned the company around. Let's not forget that so far Zelnick has still run the company at a loss, and now they're benefitting from a project he had nothing to do with. And one of the most notable aspects of this merger so far has been the revelation of his own plan to profit on the side. That's not the same as Hot Coffee or an accounting scandal, but it still doesn't give the market a positive image of this company.
Until Zelnick actually MAKES this company a non-risk, then the risk-adjusted value is the correct one.
@stereoa: That is one of the funniest comments I've ever seen. Can we get this man a Hyper Multi-Tap nomination, please'
There is no doubt in my mind that EA will ruin all of Take2's franchise games especially Grand Theft Auto. This will end up being a gigantic waste of money for EA and the end of our favorite games. Can you imagine GTA 4 as it would appear had EA released it? It would be toned down completely. The bill boards would have ads for Coke. Niko would have been replace with a female blond genius rocket scientist. I think I am going to go puke now.
@nintend0nick: I agree. If EA decides it doesn't want to put up with Zelnick's crap anymore, stockholders are going to run that man out of town... pitchforks and torches, in hand.
Although it's certainly possible, it's unlikely that EA would pay a premium for Take-Two just to run its top franchises, like GTA4, into the ground. Harmonix has stated that they're perfectly happy with EA, and that EA isn't always trying to influence their designs.
@Bastard11: It doesn't make a lot of sense to compare how Activision treats an independent developer with how EA treats a developer it's acquired.
You'd be better off comparing, say, how Activision treats id vs. how EA treats Valve. Or, alternatively, Activision's purchasing of Vicarious Visions vs. EA's acquisition of Critereon. (Shockingly, they both ended up making lots of sequels)
That line graph looks like the PS3s frame-rate. Even the numbers on the left are right.
It didn't really have room to raise much from launch because that raise already occured after EA's offer, I'm surprised people would think it would raise even higher.
TTWO closed at $25.97. Not looking too good for Zelnick if you take dubz's post with news from Reuters into account as well. The stock market doesn't surprise again.
@SpishackCola:
Bah, forget that it closed. Was looking at the wrong numbers. Anyway, its been hovering at or under $26 for the past few hours.
I forgot how fun it was to watch the stock price change in (almost) real-time. $26, no wait, $25.98, wait, $25.94, no wait...well, at least I find it fun XD
@Gam3r: Apparently, Zelnick is a very convincing man. Sadly, I think he over-estimated how badly EA wanted his company. It's going to bite him in the ass when EA lowers the offering price.
If EA buys Take-Two I will never buy any of their games again, as I've happily done in the past. If I do actualaly play them, they will be "acquired" completely out of spite. EA fills me with hate and disgust... what a terrible company it is.
@code.monkey: Thank you for saying it again ... the price is artifically elevated due to the offer from EA, people are speculating that EA will increase the offer slightly. It'll start falling in the next few weeks.
If EA buys Take Two I hope they either put in some actual game design in GTA or dismantle it.
Pah. Now that GTAIV is out, their time is up. No new releases on the horizon... just DLC really.
NEWS FLASH!
If you really want to boycott all of a company's products because they harm other human beings, put shit into your toothpaste, or support child labor, you're a hero.
If you support a boycott of a company's present and future products because this one time they put Lara Croft's tits on backwards or cancelled your Dreamcast port of Touch-Yourself-Fun 2K5, then I'm sorry. I have your test results right here and they say you're an idiot.
It's just a hobby. Fanatics like you make us all look bad.
@grangerfx: You mean the Grand Theft Auto franchise is just going to be rehashed 2 or 3 times per numbered game with little to no improvements?
Oh wait, that's why Take 2 and Rockstar are doing right now. I guess EA will have to up their game to out do the numerous cash in rehashes by TT/RS in regards to the GTA franchise.
Hmm, maybe they could release "side stories" on the PSP! Oh wait. Damn, already done. Port those to the PS2 or whatever dominant platform available! Um, nevermind, scratch that. I know, I know! We'll port it to other systems after the exclusivity contract is up! They did that? Damn.
GTA 3
GTA Vice City
GTA San Andreas
GTA 4
GTA Liberty City Stories
GTA Vice City Stories
GTA 3 came out in 2001. They've almost had a new one out every single year since then. EA will not have any impact on how "Madden"-like this franchise already is.
Get off your fucking high horses. If EA buys Take Two, nothing will change unless every single dev walks out of Rock Star that day to form a new company. Even then, it's not hard to rehash a GTA game with the groundwork already laid with GTA4. Hell, Rockstar already has micro transactions added to GTA4, not like EA can even add that to its yearly recycle fest.
Wouldn't be suprised if EA lowered it's offer more in the future. This GTA spike is going to go down and it's probably going to go down fast as all those that bought shares in Rockstar start bailing out seeing as GTA IV is out and that EA's offer isn't going to get any better. Rockstar doesn't have anything that can keep itself afloat except for GTA and soon it's shares are going to reflect that.
@KingSnorky:
Good point. I clearly didn't put a lot of thought into that post and just sort of shot it off, because I didn't mean to directly compare the two very different types of relationships.
I guess where I'm coming from is that I've often heard such positive things about working with Activision on the developer side and conversely I hear a lot of complaining from devs that have worked with EA.
Though I don't mean to defend Activision.. I just mean to point out that whatever EA gets their hands on seems to be dealt with in a manner that is to get the biggest buck out of it pronto with no regard to the long term effect.
Tony Hawk has certainly grown stale.. and more recently there have been a few bum versions churned out. But I think that pales in comparison to what EA has done with other "once-great" franchises.
Between killing off studios (or at least any of the original development staff) and forever shelving well loved IPs they tend to also be quite fond of shoveling out horrible products that are victim of too much market research long before they are polished up and fully functional. Then they fail to provide any support before moving on to the next iteration.
Even products of their "new vision" like 'skate.' end up like everything else. That game had huge potential, major hype and was very well received.. but sorry, that game is still broken over 7 months after release, not once patched.. and now who the hell is playing it or talking about it anymore?
Other horrible and evil greedy companies like Activision aren't saints within the industry or anything.. but there are far fewer examples of them destroying their own IPs or souring developer relations than EA provides time and time again.
As for Harmonix's love for EA.. well this is still a young relationship and EA is all high on trying out being the good guy. We'll see how long it lasts before they start cranking out Rock Band products by all sorts of various internal teams.
They managed to talk Valve into letting them internally develop a PS3 build of Orange Box (probably because Gabe hates the PS3 so much) and now that piece of trash port will forever be a stain on Valve's reputation.
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