With more than 60 million active player across all of its Facebook, MySpace, Google, and iPhone games every month, social network game developer Playfish was ripe for the picking. Now they've been picked. As rumored previously, EA has acquired the company for $275 million in cash and $25 million in equity retention agreements, with up to an additional $100 million in variable cash consideration, pending the achievement of certain performance milestones through December 31st of 2011.

Playfish will now operate as a part of EA Interactive, a division of the company dedicated to web and wireless games. More than 150 million Playfish titles are installed and played around the world, with titles like Pet Society, of which I am a big fan, generating more than 1 billion play sessions a month.

"Social gaming, with its emphasis on friends and community, is seeing tremendous growth and this is the right time to invest to strengthen our participation in this space," said Barry Cottle, Senior Vice President and General Manager of EA Interactive. "EAi has been successfully leading the charge for EA, and with the addition of proven expertise from Playfish, their broad consumer base and strong game brands, we're moving ahead aggressively in our plans to lead in the category of cross-platform social entertainment."

If there was any doubt that EA was completely serious about the social networking games space, this should get rid of it. This is an aggressive move into the growing industry segment that could only be topped by the acquisition of Mafia Wars creators Zynga, which I am fully expecting some major game company to announce any day now.

More than 5,000 iconic comic book characters will soon be in the hands of Disney, raising serious questions about the future of Marvel video game titles from Activision, Sega, THQ, and the upcoming MMO from Gazillion Entertainment. Under the terms of the agreement, Disney will pay Marvel shareholders $30 per share for their Marvel stock, plus .745 of a share of Disney stock for each share they own.

"This transaction combines Marvel's strong global brand and world-renowned library of characters including Iron Man, Spider-Man, X-Men, Captain America, Fantastic Four and Thor with Disney's creative skills, unparalleled global portfolio of entertainment properties, and a business structure that maximizes the value of creative properties across multiple platforms and territories," said Robert A. Iger, President and Chief Executive Officer of The Walt Disney Company. "Ike Perlmutter and his team have done an impressive job of nurturing these properties and have created significant value. We are pleased to bring this talent and these great assets to Disney."

That's Disney's say on the matter, and here is Marvel's, from the official press release:

"Disney is the perfect home for Marvel's fantastic library of characters given its proven ability to expand content creation and licensing businesses," said Ike Perlmutter, Marvel's Chief Executive Officer. "This is an unparalleled opportunity for Marvel to build upon its vibrant brand and character properties by accessing Disney's tremendous global organization and infrastructure around the world."

Both companies have approved the deal, though it still has to clear the Hart-Scott-Rodino Antitrust Improvements Act and various regulatory committees before it can be finalized. Once finalized, Marvel's Perlmutter will continue to oversee Marvel's properties, working with Disney to help integrate the two properties across multiple lines of business.

We're staying on top of the situation, with calls out to Disney, Marvel, Activision, THQ, and Sega for comment on what effects this move will have on Marvel-based video game properties.

Update: Disney discusses what this could mean for video games.

According to the LA Times' report on the matter, Warner's $33 million bid for the better portion of the company's assets was the only serious offer. There were no other formal bids.

As part of a buy out time line that would accept offers until June 24th, Midway's goods and people were previously planned to go up for auction on June 29th to the entity with the deepest pockets. No need for that now.

Warner's bid would net the media giant development studios in Chicago (Mortal Kombat, Stranglehold) and Seattle (The Suffering, This Is Vegas) and rights to new and classic IP. It would also almost certainly mean another Mortal Kombat and DC crossover.

Midway still has two orphaned studios, one in San Diego, one in Newcastle (Wheelman), with the latter currently seeking a buyer for the team and its original Necessary Force property.

More details at the LA Times.

Warner Bros. emerges as sole bidder for Midway Games [LA Times]

BigPark was formed in 2007 by a group of industry veterans formerly of Distinctive Software and Electronic Arts Canada. One of the founders was Don Mattrick, who went on to become the senior vice president of the Interactive Entertainment Business at Microsoft, so they might as well go ahead and collect the whole set. The team is currently working on an exclusive Xbox 360 game, and will continue working on said exclusive Xbox 360 game...just a bit more exclusively now.

"We are delighted by the opportunity to welcome the BigPark team into Microsoft Game Studios," said Phil Spencer, general manager, Microsoft Game Studios. "The team is composed of some of the most experienced and creative minds working in the industry today. The combination of the BigPark and Microsoft Game Studios talent pools will be an accelerant for growth and innovation. We believe BigPark has tremendous potential to create new properties and innovative gaming experiences for our platforms, one of which we're looking forward to showcasing at the E3 Expo in June."

BigPark CEO and co-founder Hanno Lemke will report directly to Spencer as the company continues to develop whatever it is they are developing. The answers to these questions and more will be revealed at E3 2009. Just consider this a pre-show preparatory purchase.

Eidos has spent nearly two decades developing their brand identity, and that brand identity will remain intact. The company will continue on as an independent organization and wholly-owned subsidiary of Square Enix Holdings Co., Ltd. Square Enix Holdings president Yoichi Wada suggests the arrangement is akin to a more romantic coupling.

"This is an exciting beginning to what I believe will be an incredible journey. I am very happy that Phil Rogers has agreed to lead Eidos in what I see as an international marriage between our two companies, a marriage that will give birth to great things. Eidos is a content rich company and a culturally significant business to the Square Enix group."

An excellent metaphor, which unfortunately has me imagining the two companies sleeping together. It's too early in the morning for mental images like that.

According to 1UP, Free Radical scriptwriter Rob Yescombe confirmed the purchase of Free Radical by the developers of Far Cry and Crysis, saying that the decade-old company "is now out of the woods."

Free Radical closed its doors in December, rather surprisingly to some, as employees showed up to locked doors and subsequent mass "redundancies."

The studio's closure led to details on two of its projects, Star Wars Battlefront III and TimeSplitters 4, being leaked far and wide.

We just hope that the company is truly out of the woods. And by that, we mean having foregone any delusions of a Haze sequel.

Crytek Purchases Free Radical, Says Haze Scriptwriter [1UP]

The Vancouver based Action Pants Inc., which currently employs more that 110 game developers, is now part of the Ubisoft game developing empire. The studio is currently working on a Wii-exclusive sports title, due out later this year, which the official announcement of the acquisition says will expand upon Ubisoft's recent success with Shaun White's Snowboarding.

"We are very excited about this opportunity, and how it will benefit our studio" stated Simon Andrews, co-founder and executive partner of Action Pants Inc. "Action Pants and Ubisoft share very similar values and we are confident that this synergy will provide all of our staff with new and exciting opportunities, as well as resources that will benefit all of our future products".

I just really hope they don't take that amazing name and change it into Ubisoft Vancouver. Ubisoft Action Pants has a much nicer ring to it. You don't want to stifle that kind of creativity.

"We are thrilled to be joining forces with SouthPeak to continue to bring great original titles from independent developers to market with a stronger sales and distribution reach,” said Mike Wilson, CEO of Gamecock. “We have followed each other's progress closely over the last two years, and combining our team with theirs results in a very strong and well-rounded force in the market."

The feverish coupling should have no effect on Gamecock's upcoming titles, with Legendary and Mushroom men still slated for release this quarter. Phew, I need a cigarette.

SouthPeak Interactive Corporation Acquires Gamecock Media Group

MIDLOTHIAN, Va.—(BUSINESS WIRE)—SouthPeak Interactive Corporation (OTC Bulletin Board: SOPK; SOPKU; SOPKW; SOPKZ), one of the fastest growing videogame publishers, today announced the acquisition of Austin-based Gamecock Media Group.

Commenting on the acquisition, Melanie Mroz, CEO of SouthPeak, stated, “Gamecock brings us a solid slate of upcoming titles, including Legendary, Mushroom Men and Velvet Assassin and supports our strategy of working with independent developers. We are excited to give the Gamecock titles a bigger platform to succeed.”

"We are thrilled to be joining forces with SouthPeak to continue to bring great original titles from independent developers to market with a stronger sales and distribution reach,” said Mike Wilson, CEO of Gamecock. “We have followed each other's progress closely over the last two years, and combining our team with theirs results in a very strong and well-rounded force in the market."

SouthPeak expects to ship Legendary and Mushroom Men in the current quarter.

R. Richard Fontaine, GameStop’s Executive Chairman, said, “As we have accelerated our growth in Europe over the years, we have kept a close eye on the European retailers whose passion for the business is reflected in the quality of their stores and evident knowledge of their staff. Micromania has been that type of retailer.

There you go, European retailers. If you try really hard to be the best at what you do, maybe one day GameStop will absorb you into their fleshy folds as well!

GameStop Acquires Micromania, France’s Leading Video Game Retailer from Private Equity Fund L Capital
Transaction Includes 332 Locations Throughout France

Increases GameStop’s European Presence to 1,077 Stores

GRAPEVINE, Texas—(BUSINESS WIRE)—GameStop (NYSE: GME), the world’s largest video game retailer, today announced that it has reached a definitive agreement to acquire Micromania, France’s leading video game retailer with 332 locations throughout the country, from private equity fund L Capital, its controlling shareholder.

GameStop, which currently has no stores in France, will operate 5,889 locations worldwide in the United States, Canada, Australia, New Zealand and, with the Micromania acquisition, the European store count will top 1,077 stores located throughout France, Italy, Germany, Austria, Switzerland, Sweden, Norway, Denmark, Finland, Ireland, Spain and Portugal.

The transaction, for approximately US$700 million (€480 million) in cash, including the assumption of debt, is subject to clearance by the European Commission, and is expected to close in November of 2008. Under the terms of the agreement, GameStop will purchase virtually all of the outstanding shares of the company. GameStop intends to fund the transaction through cash on hand, a draw on its existing revolving credit facility, and a $150 million committed term loan from Bank of America.

R. Richard Fontaine, GameStop’s Executive Chairman, said, “As we have accelerated our growth in Europe over the years, we have kept a close eye on the European retailers whose passion for the business is reflected in the quality of their stores and evident knowledge of their staff. Micromania has been that type of retailer.

When the opportunity arose to purchase Micromania, and after meeting the executives who lead the company, we became convinced that expanding into Europe’s second largest video game market with Micromania’s management team and GameStop’s diverse experience was a great combination for profitable growth.”

Daniel A. DeMatteo, GameStop’s Chief Executive Officer, indicated that, “The transaction is a reflection of our belief that the European video game market is growing and will be an important part of GameStop’s worldwide growth.

Historically, our most productive use of capital has, by far, been the addition of new stores whether opened organically or acquired. With the addition of Micromania, we have begun deployment of capital that we believe will help us achieve EPS growth of 25% or more in fiscal 2009, and set GameStop up for continued growth in the years to come. We expect this acquisition to be accretive to our fully diluted EPS in both the fourth quarter of fiscal 2008 and fiscal 2009.”

Pierre Cuilleret, who will remain Micromania’s President Directeur Général, said, “Micromania is a terrific brand. I am particularly pleased that the GameStop management team recognized the impassioned quality and importance of our sales advisors and senior managers. With GameStop as a partner, and with their history of seeking out new growth opportunities, I am very enthusiastic about our potential to expand the brand that has been built for over 25 years in France”.

Philippe Franchet, Senior Partner of L Capital, said, “Our strategy, engaged in 2001, to build the leading video games retailer in France under the management of a top quality team has paid out. It is this strategic position and the quality of the management team, under the leadership of Pierre Cuilleret, that the world leader GameStop has acquired.”

Citi acted as financial advisor to GameStop, and Lazard Frères acted as financial advisors to Micromania’s shareholders. Bryan Cave LLP served as legal advisor to GameStop and Ayache, Salama & Associés served as legal advisor to Micromania’s shareholders.

However, says Infogrames: "The SCi Board has declined, at this stage, to entertain Infogrames' offer."

Infogrames is still raring to go on the bid, though, saying that it has "sufficient resources" to satisfy the offer, and adding it has also "secured commitments" that will help fund SCi's potential working capital requirements. "Importantly," the statement adds, "Infogrames is in a position to move expeditiously with its proposal."

The regulatory announcement suggests the door's still open on the proposal, though there are no guarantees:

"Whilst Infogrames has been considering a range of options, including but not limited to a potential merger with SCi, there can be no certainty that any offer will be made for SCi," said the statement in part, concluding with, "A further announcement may be made, if and when appropriate."

SCi recently got a shot in the arm in the form of a $120 million bailout from investor Warner Bros.,who increased its stake in the company to 20 percent. In the process, SCi gained access to couple WB licenses (Looney Toons, The OC, the Batman comics) — and, apparently, lost 25 percent of its staff as well as some current projects (flagship titles like Tomb Raider, Hitman, Deus Ex and Championship Manager are safe).

When approached for questions, a rep for SCi said he was unable to comment on the company's current business.

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 rumors 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 favor 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."

On the table? In addition to a reinstatement of the board, that controversial compensation package to executives, through which Strauss Zelnick's ZelnickMedia stood to see their monthly pay go up from $62,500 to $208,333. The compensation package also includes a bumped up annual bonus, from $750,000 to $2,500,000 per year, and 600,000 shares of common stock that the management also gets as part of the same compensation boost. Only investors who bought shares before February 19th were able to submit ballots on these issues.

Even chairman Strauss Zelnick acknowledged, though, that what most of the stockholders really wanted to hear about was EA. And he held little back in a spirited attempt to convince shareholders that, at least for the moment, they were better off not selling.

Hit the jump for Kotaku's full coverage of what went down in the meeting.

Take -Two opened with a video presentation that chairman Strauss Zelnick said would demonstrate the breadth and quality of Take Two's products, the depth of its portfolio and the strength of its staff. Given that Take-Two aims to convince its shareholders it can maintain a share price over the $26 they've been offered by EA, it's not surprising that he'd open with a focus on the positives. We couldn't see exactly what the presentation contained, listening in on an audio-only feed — all we could hear was some amped-up guitar music, the kind you'd expect to hear overlaying a montage.

Following the video, CEO Ben Feder continued on the upbeat note. "We've made significant progress over the past year on all fronts," he began, praising the progress of the company's turnaround initiatives announced this time last year. Federer said the reorganization in place, including a $25 million cost reduction initiative, is going well, and reminded attendees that the company's now backed with a credit facility to ensure stability.

"We're very pleased that we've broadened our product lineup across all genres, platforms and demographics," Feder said, and expressed confidence at the company's "robust" lineup for the coming years. On GTA's upcoming launch, Feder confirmed the game is complete and in production. "GTA... is our most profitable and biggest-selling franchise. Retail preorders for GTA IV are ahead of our initial expectations, which suggests that the launch of GTA could be defining for our company and for the entertainment industry."

Federer also promised releases beyond GTA held strong potential. He mentioned the upcoming Midnight Club, which as a franchise has sold 12 million units to date, Sid Meier's Civilizations Revolution, the 8 million-selling franchise's console debut, and the follow-up to BioShock slated to release in 2009.

In addition to praising the performance of Carnival Games, Feder called Take-Two's stable of sports titles one of its highest achievements, and expects, based on all these strengths, for Take-Two to turn a profit this year, rounding out the positive tone by expressing confidence in the Asian expansion initiative announced earlier this week.

Zelnick reclaimed the floor, reiterating what he's been saying all along regarding EA's offer: "The Board and management of Take-Two strongly believe.. that EA's offer is still at the wrong place, and still at the wrong time."

He cited "one of the strongest porfolios of intellectual properties in the business," Take-Two's suite of 17 development houses including Rockstar, 2k, 2k Sports and 2k Play, and a staff of 1400 developers altogether, and said Take-Two has 30 titles with sales of 1 million units or better — and, claimed the highest-rated titles of all third-party publishers including EA.

He called EA's bid "highly opportunistic," stating, "We believe EA's decision to pursue a hostile process instead of a cooperative one is strong evidence they're trying to lock in value at the expense of [stockholders]."

Added Zelnick, "The offer also fails to take note of... positive results we're seeing from turnaround initiatives that are well underway. EA's timing was specifically designed to capture the benefit of those initiatives before they became apparent and reflected in our stock price. We've become a much more efficient company. We believe we're a much better-managed company. We're a rational company; we make rational decisions. We have a lot of hard-working, dedicated, talented people."

Specifically, he focused on 2K Sports, saying that head-to-head, 2k beats EA on every metric for sports titles. "EA's offer doesn't remotely compensate stockholders for the value of the sports business to EA," Zelnick stressed.

Zelnick's voice took on a tone of urgency, and the audio picked up what sounded like him striking the table to punctuate his speech. "Take-Two is worth more than $26 per share — and I'm being moderate because I have lawyers in here. The board believes it's worth more than $26 a share. I urge stockholders not to tender shares at this price."

However, he made it clear the door is open to negotiations in the future: "That said, I want to emphasize — this is crucial. The board of Take-Two, the management of Take-Two is one hundred percent, absolutely committed to doing the right thing by stockholders and to create value at this company. The results... are only going to get better."

He said the board would consider all its options — including remaining independent — but that the company is prepared to begin formal discussions with interested parties on April 30th. He again said that Take-Two has received "numerous indications of interest from third parties," and that they continue to receive inquiries — though when asked, Zelnick would not disclose whether he'd entered into any kind of confidentiality agreement that would protect such discussions.

Finally, Zelnick noted that both Take-Two and EA are cooperating with the FTC on its investigation of possible antitrust violations surrounding the proposed transactions, and he refused to speculate on what areas in specific the FTC might be scrutinizing the most closely.

Yesterday, we discussed the strategies Take-Two undertook to try and stall or thwart EA's bid. They've been refusing to talk with EA or explore offers, and they're doing their best to entrench the current Board of Directors with that compensation boost that features stock that takes three years to fully vest. They also implemented that stockholder's rights plan — the so-called "poison pill." As it turns out, someone who is allegedly one of Take-Two's stockholders is none too happy with these tactics — and he's ticked enough that he's taking the company to court.

Take-Two disclosed this morning in a filing to the SEC that the alleged stockholder, one Michael Maulano, filed a class action complaint on April 11th against Take-Two and it's eight-member directorial board in the Supreme Court of the State of New York, where the company's headquartered. Maulano calls Take-Two's tactics a breach of fiduciary duty, and the suit also alleges that Take-Two's responses to EA's offer contained "misleading and incomplete" information.

Maulano wants "declaratory relief, preliminary and permanent injunctive relief, damages, and reasonable attorneys' fees and litigation expenses," and it is unclear how many other shareholders, if any, are part of Maulano's class action suit. Take-Two was not immediately available for comment on the suit, but said in its disclosure: "The Company and its Board of Directors believe these claims lack merit, and intend vigorously to defend against them."

This is a different lawsuit from one filed last month by Prickett, Jones & Elliott on behalf of Take-Two shareholder Patrick Solomon. Solomon aims to sue Take-Two management over the controversial compensation boost.

Bonus info: Why take Take-Two to court rather than simply make a proposal for a vote in the annual meeting? As we learned yesterday, only shareholders who bought Take-Two stock before the cut-off deadline can submit proposals or vote at the meeting — and those that bought stock after EA's bid aren't eligible to vote. It's unclear how long Maulano has been a shareholder, but even if he is one of those able to vote, it may be that there wouldn't be enough people on his side of things at tonight's meeting.

Later this evening — 6:00 PM Eastern Time, to be exact — Take-Two will hold its annual meeting for investors. When Kotaku spoke to some analysts yesterday to help lay out exactly what's been going on regarding EA's aggressive bid to buy the company, and we learned that today might turn out be a very big day for progress in that arena.

EA also revealed this morning that the Federal Trade Commission has filed a second request for information on the proposed transaction, so that it can investigate possible anti-competition issues — though the FTC has drawn no conclusions yet, and requires more time to investigate.

We'll follow this story as it develops throughout the day and keep you posted.

But tomorrow, Take-Two is set to hold its regularly-scheduled annual meeting for its shareholders, where they can hear from the executives and vote on internal matters. And although this may look like just another routine affair, it might become clear on Thursday night whether EA's bid is likely to succeed— or whether it will end up dead in the water.

Not so clear on what's going on? Hit the jump for the whole story, including the anatomy of a takeover, possible outcomes, the reasons behind Take-Two's resistance, and more.

Neither Take-Two nor EA were immediately available for comment, so to understand what's going on here, let's recap the story so far. On February 19th, EA CEO John Riccitiello sent a letter to Take-Two board chairman Strauss Zelnick, proposing to acquire the company at a price of $26 per share. Almost immediately, Zelnick rejected the bid, claiming it "substantially undervalued" Take-Two, and said he wouldn't be willing to discuss a merger between the two companies until after the release of Grand Theft Auto IV.

At that time, Riccitiello urged Zelnck to discuss the matter with him privately — promising he'd take the bid public unless Zelnick agreed. Zelnick did not, and EA's acquisition bid went public on February 25th. Again, Zelnick refused to enter discussions with Riccitiello, promising he'd do so on or after April 30th, claiming he didn't want to jeopardize GTA IV's release with any major transactions — and suggesting that the release would add greater value to Take-Two's stock than EA was giving it credit for.

But analyst Michael Pachter is just one of many in his field who believe that investors are already aware of the value of GTA, and that Take-Two's share price reflects that. "I've put in print a dozen times that I think this game will sell 9 million [units] this fiscal year, and 9 million next fiscal year," he explained to Kotaku. "And I say it, and guys like [Janco Partners analyst] Mike Hickey say it... there are some 30 analysts who cover Take-Two. And I don't think anybody has an estimate below 14 million."

In other words, the release of GTA IV wouldn't change a thing for Take-Two — and yet the board continued to hold out. Faced with Zelnick's resistance, the next step for EA was to go hostile. In this type of scenario, the bidding partner bypasses the board to try and buy shares directly from the company's investors. Any share can be sold — and if EA gets more than 50 percent of the existing shares in Take-Two, they gain control of the company. On March 13th, EA formally announced that offer to the investors. And Take-Two, of course, urged its shareholders not to sell, warning that EA's offer just wasn't good enough. They stressed this again on the 26th.

Pachter doesn't see much merit in Take-Two's unhappiness with the offer value. "The point is that last year, and the year before, they didn't have GTA and they lost a buttload of money," he says. "Take Two loves to brag about all their franchises, but the fact is they have 3 Christmases in a row — '06, '07, and '08 — where they lost money. No other video game company lost money in 3 Christmas quarters in a row in history... If you can't make money at Christmas, you are not the 'best video game company in the world.'"

But Take-Two's been sticking to its guns. Kotaku also got input from Lazard Capital Markets analyst Colin Sebastian, who explained, "When analysts tell you that on one hand [EA's offer] undervalues the company, they're looking at just this year's number, which looks very strong just given that GTA is in the year, because that's a very profitable title. It's a very big year for Rockstar and Take-Two. But if you were to normalize over the past few years, they were losing money. There's another method of valuing the company that's looking at it over a period of time — and it doesn't look like an inexpensive acquisition, if you will."

Added Sebastian, "I would agree with Michael; I personally think that... aside from GTA, I think Take-Two has yet to demonstrate a consistent track record for generating profits, although some of the moves they've made... appear [to be] on the right track. But from the point of of EA it's certainly a risk, because Take-Two has been losing money. The problem is, the longer you wait, the less GTA revenue a potential acquirer could get. EA obviously wants as much GTA in their fiscal year as they can get, and as time goes by, they get less."

So time is of the essence. Why then, doesn't EA just offer more money for Take-Two to try and seal this deal quickly? Pachter explains that EA doesn't need to — they've already offered "substantially more" than the company is worth. Moreover, Zelnick won't negotiate with Riccitiello right now. In fact, Zelnick said that, since EA went public with the bid against his wishes, he'll no longer cooperate with EA by allowing them access to any of the company's information that might help generate a different dollar value.

Pachter compares it to demanding more money for your house without letting potential buyers inside to look at it — and he's baffled by the situation. "I don't get why Take-Two management was not willing to privately meet with EA and discuss a possible combination at a price that is in everybody's best interest. Take-Two management... have repeatedly said that $26 is an unfair, inadequate price. Then why aren't they willing to go sit down with EA, explain why $26 is not a fair price and why some number above that is a more fair price, and at least hear EA explain about whether they're willing to go higher or not? If you don't explain to EA why they should pay more... they're not just going to volunteer to pay more... Riccitiello tried for a couple months to be friendly, and Strauss is the one who was hostile."

In fact, Take-Two has tried to explain, in the information it's released to its investors, but the explanation seems to contain a little bit of fuzzy math. When we talked to Pachter, he helped us parse out what it all meant: "First of all, all analyst estimates on Take-Two are before tax . Because Take-Two lost so much money they don't pay taxes — they pay, like, 3 percent. When you don't make profits to offset losses, you don't pay taxes. But Take-Two is using analyst estimates.... to compare [themselves] to Activision, Ubisoft, THQ and EA... and their analyst estimates are all after-tax. If you're EA and you buy Take-Two — you suddenly pay tax on all Take Two's income, because EA doesn't have big losses... So now is it an inadequate offer?"

Moreover, Pachter points out that Take-Two's stock rose after the EA offer went public — and it's only thanks to that that Take-Two might compare, value-wise, to THQ, who is in "turnaround mode," but not to Activision or Ubisoft, who Pachter says are "kicking ass."

So all signs suggest that the excuses Take-Two have made for why they aren't dealing with EA don't really hold water. So could it be that Take-Two management has a completely different reason for rejecting the offer? Not because it's too cheap, and not because of GTA IV, but because the management might have something else to lose?

Not an offer from another buyer; though Take-Two has said it was entertaining other discussions, no one has stepped up. "If Take-Two was waiting for a white knight... we haven't seen evidence of that happening," Sebastian notes.

Take-Two's SEC filings reveal something interesting. On February 14th, the company management effectively tripled the management fee that Strauss Zelnick's ZelnickMedia receives from $62,500 to $208,333 — that's per month. Zelnick's management company is also getting a bumped up annual bonus: from $750,000 to $2,500,000 per year. The real big deal here, though, is the 600,000 shares of common stock that the management also gets as part of the same compensation boost.

Executives often get large stock packages that are supposed to help motivate them to raise the value of the company's stock through their management decisions. But if ZelnickMedia loses control of the company, there's no point in him having such a package. And the filing on the compensation boost makes it plain: In the event of a "change of control" — in other words, if EA's bid succeeds — ZelnickMedia won't get those shares.

So it sure looks like this isn't necessarily about GTA, the value of the stock, or the timing of the offer — except as it inconveniences ZelnickMedia's attempt to make itself a little richer."That's obviously a cynical interpretation of events," says Sebastian. "Not to say it's not true... it's hard to think that it's a pure coincidence."

Kotaku wasn't the only outlet to note the odd, potentially unethical timing of the rejection, either — MarketWatch's Herb Greene is generally credited with exposing the information. Additionally, EA's Jeff Brown disapproved to the LA Times, "If Strauss Zelnick keeps telling people he's a Boy Scout, someone should ask him what merit badge he expects to get for this."

Moreover, Take-Two has taken an extreme measure to try and block the hostile takeover by implementing what's called a "poison pill." The board adopted a measure that says that anybody who buys more than 20 percent of the company's shares after April 7th — in other words, EA — is limited in the number of votes they get in the company. In other words, if EA wins the company, they wouldn't be able to control it.

At the time, Take-Two also moved their annual meeting ahead to April 17th so that it would take place after the April 11th deadline for EA's bid. EA responded by simply revising the offer, extending it until April 18th — and also adding a condition for the offer that would effectively invalidate the poison pill.

We asked Pachter about the poison pill, and he told us that it's a normal thing that happens in hostile takeover situations — but it might not be a major obstacle. "In the history of the U.S., there's never been a poison pill that's actually been implemented," he says. "They're just a pain in the ass obstacle that exists to force EA to sit down and meet with the management of the target company."

Take-Two's investors could vote down the poison pill by deciding that it doesn't apply to this transaction. So right now, the fate of the EA-Take-Two merger is in the investors' hands.

And who are Take-Two's investors? Since its largest investors, Fidelity and Oppenheimer, sold big chunks of their ownership, Pachter doesn't believe that any one person owns more than 5 percent of the company at the moment. Sebastian also believes that interpretation is consistent with the public filings. Instead, Take-Two investors are likely a large group of arbitrageurs: people who buy a stock and then flip it quickly when its value increases. Instead of investors who hold stock for the long-term, these guys make their money through frequent, small gains.

There's a chance that the arbitrageurs may ask EA to raise their offer before they agree to vote down the poison pill — in that way, the pill acts as an inconvenience that could squeeze more money out of EA. But Pachter's almost certain that, if that's the case, then the arbitrageurs have already spoken to EA on their demands — and that EA has probably already agreed to them. Pachter suggests that might be the reason for all the silence on EA's end since the hostile bid was announced: they don't need to say anything. They don't need to brag; they've already won.

Predicts Pachter, "My guess is somebody.... will float a shareholder proposal, a resolution, that the poison pill not apply to this transaction. If that passes — which means more than 50 percent vote — then that tells you the next day, more than 50 percent will tender their shares to EA." And if fewer than 50 percent support a work-around for the poison pill? EA walks.

Take-Two announced today, though, that nobody had submitted any shareholder proposals. And because of the time period that proposals were allowed to be collected, none of the people who have bought Take-Two stock since the bid was announced have a say in the meeting — even though current patterns suggest this could be 50 percent or more of the company's shareholders.

So how might those latecomers — those who might have bought in in anticipation of a sale to EA — get their way, if they can't vote in the meeting? They could convene their own shareholder meeting, explains Pachter, after Take-Two's. As of right now, though, Take-Two's stock is trading just above the almighty $26 number — and Pachter surmises this could mean that the arbitrageurs holding the stock have faith that the EA deal will be accomplished.

Lazard's Sebastian has a more moderate view of what might go down at Thursday's meeting: "I think we'll find out how many shares have been tendered, and as of the last... I think there were 500 shares that have been tendered to EA. So it's almost nil — and probably because people want to know what the alternatives are. If you're Take-Two management, your options are to sell to EA — or go back to where you were, [a share price of] $15-17." According to Sebastian, Take-Two must convince its shareholders it has a plan to raise the stock price over $26. "It'll be up to shareholders to decide," he says.

What about that Asian expansion Take-Two just announced? "It doesn't hurt the valuation," says Sebastian. "A long-term strategic plan for building out [into] Asia is important. But I think it's too transparent... you can't just hire somebody and suddenly your company is worth 20 percent more. That's a little too transparent."

Pachter believes the merger would be in the best interest of both game developers and gamers, resulting in "more games, less crap." Games like Midnight Club, for example, would join a rotation with games like Burnout, meaning more selection and more frequent releases of high-quality titles. And the Rockstar mainstays wouldn't suffer, Pachter suggests. "GTA is not ever going to be different. EA's not going to mess up the formula. And I think, internally at Take-Two, a lot of those people are going to breathe a sigh of relief," Pachter says of the possible merger. "Sid Meier, Ken Levine — those guys are gonna love EA, because EA's gonna pump out more copies of their game."

Either way, we could see a turning point in this long battle as early as Friday morning, following decisions to be made at the Thursday evening meeting. At the very least, by EA's Friday deadline, it will have to revise its bid or let it go. Will it be a victory for EA, or will they walk? Let's see what the investors say.

[The full archive of the public disclosures by Take-Two and EA contained in this article can be found at Take-Two's investor relations site, at Electronic Arts' investor relations site, and at the SEC's public archive of filings on the matter.]

"Maybe they hit the wrong button on the calculator," said a source close to Shanda regarding small and medium size gaming companies overshooting their values.

Ye Youzhong, CEO of Kaixin Investments, said that online game companies had recently overvalued themselves by over tenfold, making investments in them unprofitable when considering that the current price-to-earnings ratio of listed Chinese gaming companies is around 30. He said that if bought for a price of 12-15 times their real value, it would take a full three years—including the market listing process—before the investing company saw any profit. Moreover, he added, a lot of these companies had no chance to be listed in the first place.

I'm sure everything will balance out in the long run, and I can't imagine this will have a huge impact on the speed with which the industry in general is growing. Still, it's interesting to look at the inner workings of some of these big companies and what they're worrying about.

Online Game Industry Deals Paralyzed [EEO]

Intel To Acquire Havok

SANTA CLARA, Calif., Sept. 14, 2007 Intel Corporation today announced it has signed a definitive agreement to acquire Havok Inc., the leading provider of interactive software and services used by digital media creators in the game and movie industries. Havok will become a wholly owned subsidiary of Intel.

The acquisition will enable developers in the digital animation and game communities to take advantage of Intel's innovation and technology leadership in the creation of digital media.

"Havok is a proven leader in physics technology for gaming and digital content, and will become a key element of Intel's visual computing and graphics efforts," said Renee J. James, vice president and general manager of Intel's Software and Solutions Group. "Havok will operate its business as usual, which will allow them to continue developing products that are offered across all platforms in the industry."

Havok's modular suite of software development tools is used by game and digital animation creators to build realistic video games for all types of hardware and digitally animated movies. The company's combination of superior technology and dedication to customers has led to its technology being used in more than 150 of the world's best-known game titles, including "BioShock," "Stranglehold," "Halo 2," "Half Life 2," "The Elder Scrolls IV: Oblivion," "Crackdown," "Lost Planet: Extreme Condition," "MotorStorm" and "Harry Potter and the Order of the Phoenix." In addition, Havok products have been used to create special effects in movies such as "Poseidon," "The Matrix," "Troy," "Kingdom of Heaven" and "Charlie and the Chocolate Factory."

"This is a great fit for Havok products, customers and employees," said Havok CEO David O'Meara. "Intel's scale of technology investment and customer reach enable Havok with opportunities to grow more quickly into new market segments with new products than we could have done organically. We believe the winning combination is Havok's technology and customer know-how with Intel's scale. I am excited to be part of this next phase of Havok's growth."

Havok was founded in 1998 in Dublin, Ireland, and has offices in San Francisco, San Antonio, Stockholm, Calcutta, Munich and Tokyo. The company will be a wholly owned Intel subsidiary and continue to operate as an independent business working with its customers in developing digital media content. Terms of the agreement were not disclosed.

Shanda's market cap today is $2B. It's not far-fetched to assume their purchase price might be close to $3B. The only companies with that kind of cash on hand are EA and Microsoft .... Netease (NTES) has a market cap of $2.06B. The9's (NCTY) market cap is $1.14B. Nexon is privately held, but with $235M in revenue two years ago, they won't be cheap either. The point is, there aren't many deals left among the virtual goods establishment.

The billion dollar question is: Where will these numbers be next year? Or in 2-3 years?

My gut says that in two years, North American companies will be "priced out" of acquiring a leadership position in the global virtual goods market.

To avoid this fate, big American publishers need internally developed/wholly owned virtual goods projects or partnerships with newer, smaller virtual goods companies ....

Of course, there are plenty of games that are ridiculously popular in Asia that will never be able to make the leap to Western markets, and there are plenty of poorly-designed, cheaply produced games that aren't going to provide years of revenue for their creators, but there is something to be said for 'keeping up with the times.' More traditional channels are never going to go by the wayside, but those free-to-play models around the margins are providing a challenge to the more standard fare.

US Publishers Can't Buy Asia's Virtual Goods Lead

The agreement enables 568 Inc. and CryptoLogic to establish a new China-based venture that will develop and distribute casual, skill-based games for the local and overseas Chinese-language markets. Games will include single- and multi-player mahjong, poker, online pool, puzzle challenges and approved card games including Chinese poker variants.

Having listened to majiang addicts shuffle their tiles for hours on end (alone, at 4 am, so they can learn the feel of the tiles by nothing more than touch), I'm not sure they need any more ways to gamble away lots of money - though I suppose it will save their neighbors from the sound of swirling tiles, which are louder than you'd probably think.

CryptoLogic Makes Strategic Investment to Further Asian Strategy [Yahoo Finance via PlayNoEvil]

Crytek brings not only a pair of highly regarded FPS franchises to the table, but also its in-house developed CryENGINE. It's possible that a Crytek purchase could bring in extra licensing cash for EA, as the Renderware platform from the also-purchased Criterion loses ground to Epic's Unreal Engine platform. Michael McWhertor

EA Buying Crytek?

Rumors also indicate an announcement could be coming "within the coming days" and that said studio purchase would prevent any further lay offs.

Molyneux denies layoff rumours as Microsoft closes in on Lionhead [GamesIndustry.biz]