Take-Two Could Drive Even Higher
The bidding for Take-Two Interactive (TTWO) has sent its shares soaring and it may go higher.
Video-games publisher Electronic Arts' (ERTS) $2 billion bid for its smaller rival Take-Two sent the latter's shares soaring more than 54% on Monday.
Now Take-Two's shareholders are holding out for more, betting EA will open its wallet even wider. And their hunch may be on the mark.EA could raise its generous offer by $1 at least to $4 if pushed, some analysts say. Take-Two's stock closed up $9.49 to $26.85 moving past EA's bid of $26 a share in cash on Sunday. EA's offer represents nearly a 50% premium over Take-Two's closing price of $17.36 Friday and a 64% increase over the stock quote on Feb. 15, the last day before EA sent in a revised bid privately to the company. But with Take-Two's board rejecting its bid twice, EA felt it had no choice but to take its offer public and watch Take-Two's stock rise. "EA is bidding against itself right now," says Arvind Bhatia, an analyst with Sterne, Agee & Leach. "They could go a little higher if needed and if it takes another $1 or $2 to complete the deal they will do it." Shares of EA closed down $2.60, or 5.2%, to $47.14 Monday. Analysts say both EA and Take-Two need this merger. They say EA's purchase of Take-Two will bring the company a new stable of franchises, reap millions in revenue from the upcoming Grand Theft Auto IV game and decimate its competition in the sports genre. EA can afford to make Take-Two shareholders sweat a little but it is running up against some deadlines of its own. The Redwood City, Calif. -based EA is keen to gain control of Take-Two before the company releases Grand Theft Auto IV, its biggest hit of the year and a title expected to become the year's best-selling game. Grand Theft Auto IV hits retail shelves on April 29. "EA wants to seal this transaction before the April 29 release ostensibly so that the deal can close in time for EA to influence sales of Grand Theft Auto IV in the 2008 holiday season," says Christopher Hickey, an analyst with Atlantic Equities in a research note. Atlantic Equities does not own shares or have an investment banking relationship with EA and Take-Two. Hickey is betting that EA's eagerness to close the deal could lead the company to pay as much as $30 a share for Take-Two. Even paying $30 a share in cash, the deal could add 4% to EA's fiscal 2010 EPS, he estimates. EA's acquisition of Take-Two, if successful, would be the largest in recent years. The company's growth strategy has depended in large part on acquisitions. Take-Two's management is facing its own pressures. The company's top four shareholders, who own nearly 50% of its outstanding stock, are likely to push for an agreement. Take-Two also has its annual shareholder meeting in early April, when many investors are likely to push for the deal. "Take-Two will be forced to do something here," says Bhatia. "Investors are going to look at it and ask the management to go for it." And some analysts say EA may already be overpaying for Take-Two. "Given that Take-Two's business overlaps EA's in many areas and Take-Two's ongoing legal issues, we believe that EA is willing to pay too high of a price," says Evan Wilson, an analyst with Pacific Crest Securities in a research note. Pacific Crest makes a market in EA and Take-Two shares.
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
Check Out Our Best Services for Investors
Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.