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There's been no shortage of action the last couple of days in game software publisher


(ATVI) - Get Activision Blizzard, Inc. Report


Activision shares jumped Tuesday to a 52-week high after the company posted stronger-than-expected earnings, showing that its business is growing even faster than the rest of the revved-up video game industry. But the stock gave back those gains Wednesday as the company rolled out plans to cash in on its recent success with a 7.5 million-share offering.

Analysts said that in setting up the offering, Activision is making a bold gamble that it can topple market-share leader

Electronic Arts


. Raising cash will gird the company for a costly run at Electronic Arts, some analysts said -- although others warned the company's earnings would be diluted by the offering.

Activision slid $3.12, or 9%, to $31.49 Wednesday. Other stocks in the sector sold off more mildly as Wall Street reassessed the industrywide picture.

Clock of the Heart

The debate about Activision started heading toward fever pitch at a very strange time Tuesday. After the stock added 10% during the trading day following Activision's strong earnings and a boost to its 2003 financial guidance, the company issued two late-day press releases laying out its plans to raise some $250 million in a stock offering through Goldman Sachs.

Though several analysts said Activision was most likely just responding as quickly as possible to a fast-moving market opportunity, the timing of the releases -- at 10:38 and 11:28 p.m. EDT -- was certainly unusual. Most companies announce stock offerings and other meaningful corporate news within a few hours of the start or the close of the trading day.

"We try to release it when we felt everything was completed," Activision CFO Bill Chardavoyne said in an interview.

Another wrinkle in the deal arose when Merrill Lynch slammed the deal, saying it hurt earnings. "We believe the transaction is dilutive, which should reduce potential 'upside' to our EPS estimates," wrote Merrill Lynch analyst Justin Baldauf, who maintained his neutral rating. Merrill Lynch and UBS Warburg were originally tapped to underwrite a smaller-scale offering late last year, but were eventually replaced by Goldman.

Baldauf didn't immediately respond to a call seeking comment. But Chardavoyne said, "They make their independent decisions, as other firms do."

In any case, Activision's surprise helped drag the sector down. Electronic Arts shares fell $1.31, or 2%, to $62.97.

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shares fell $1.49, or 4.61%, to $30.80.

Take-Two Interactive

(TTWO) - Get Take-Two Interactive Software, Inc. Report

dropped 35 cents, or 1.3%, to $25.85, and



dipped 32 cents, or 3.3%, to $9.29.

Bulls, China Shop

Despite the selloff, some analysts were staying the bullish course on the company. Investec games analyst Jim Preissler notes the deal will nearly double Activision's cash reserve. That's good because potentially lucrative movie licenses such as those to



can cost upwards of $40 million to $50 million before development costs.

Given the prospect of greater head-to-head competition, Wall Street has recently taken to speculating that Electronic Arts and Activision could be preparing a shopping spree for midtier players, including









and Midway.

"It's getting pricey to compete with EA -- not only to acquire developers, but also to acquire grade-A licensing content," Preissler said. "Not too many of these companies can take that kind of hit." (Investec doesn't have any banking relationships with Activision and Electronic Arts.)

Activision was coy on that point. "The significant amount of cash ... puts us in a very competitive position," said Chardavoyne, declining to speculate on potential acquisitions. He added that the company is on the lookout for "intellectual property and development talent."

The battle of the big gamemakers is expected to heat up in the second half, heading into the holiday season as most of the major publishers ready its blockbusters. EA's trump card will be games based on Lord of The Rings and its highly anticipated updates on The Sims. Activision will be releasing updates on games based on Star Trek, X-Men and Tony Hawk.