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Shares of

Take-Two Interactive Software

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

took off Wednesday after the video game maker beat third-quarter estimates, raised guidance for the rest of the year and announced the acquisition of family-friendly gamemaker

TDK Mediactive



Shares of Take-Two gained a hefty $6.25, or 21%, to reach $36, a new all-time high, in recent trading. Shares of TDK climbed 14 cents, or 33.8%, to 54 cents in recent trading.

New York-based Take-Two, maker of the wildly popular

Grand Theft Auto

franchise, reported third-quarter net income of $7.7 million, a 60% increase from $4.8 million in the year-ago period. On a per-share basis, net income rose 50% to 18 cents from 12 cents a year ago. Analysts polled by Thomson First Call were expecting earnings of 17 cents a share.

Sales for the third-quarter ending July 31 climbed 27% to $155.6 million, higher than the consensus estimate of $144.8 million.

Take-Two said it will purchase TDK Mediactive for about $22.7 million. Take-Two will pay 55 cents a share to TDK Mediactive stockholders, representing a 37.5% premium over Tuesday's close of 40 cents. Take-Two also will purchase $9.9 million in debt and pay $200,000 to retire outstanding stock options for TDK. TDK reported a net loss of $8.3 million, or 36 cents a share, on $42.2 million in revenue in the fiscal year ended March 31.

TDK brings such family-friendly names as



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Pirates of the Caribbean


The Muppets

to Take-Two, which has been criticized as a one-hit wonder with its bloody but successful

Grand Theft Auto

. Take-Two and TDK Mediactive also have entered into a separate agreement providing Take-Two with exclusive North American distribution rights for TDK titles including

The Haunted Mansion

, scheduled for a mid-October launch in advance of the Thanksgiving release of the Disney feature film.

"I think what

the TDK acquisition really shows is Take-Two is maturing from a hits-driven company to a company with a broader product line," said Joe Spiegel, an analyst with New York-based hedge fund Spinner Asset Management, which owns shares of TDK.

"What I like about it is it shows that Take-Two, which was a company that was really on the cutting edge of developing games for the older gamers, recognizes that the underfollowed and underappreciated niche is now the undergamer," Spiegel added. "Undergamers," or younger gamers, become more important because with the video game console market maturing, they can now afford to buy consoles and games.

Including the distribution agreement with TDK, Take-Two raised its guidance for the fiscal year ending Oct. 31 to $2.30 a share in earnings on $1.015 billion in revenue. Analysts were projecting Take-Two would earn $2.29 a share on $984.6 million in revenue in fiscal year 2003.

The company also offered initial guidance for fiscal year 2004, assuming the TDK acquisition will add about $35 million in sales but have no material effect on net income. Take-Two projects 2004 earnings will come in at $2.68 a share on $1.18 billion in revenue. That's significantly higher than the consensus estimate of $2.48 a share on revenue of $1.05 billion for fiscal year 2004.

For the historically strong first quarter 2004 ended Jan. 31, Take-Two expects earnings of $1.21 a share on $412 million in revenue. Analysts were expecting higher earnings -- at $1.27 a share -- on revenue of $402.6 million in the first quarter 2004.

Meanwhile, in other video game industry news, the largest video game maker,

Electronic Arts


, was downgraded Wednesday to hold from buy by Wedbush Morgan Securities analyst Michael Pachter, who said the stock is currently fairly valued.

Pachter noted that the stock has appreciated 23.4% since mid-June and 72% in the past six months to close Tuesday at an all-time high of $91. Although he believes the company has the deepest portfolio in the industry and will gain market share in the next year, Pachter cautioned that he no longer feels there is room for significant price appreciation over the next six months.

Pachter cited several "qualitative issues" that lead him to believe the stock is fairly valued. "We are concerned about recent insider selling, are concerned about the increasing number of stock options granted over the last three years and are concerned that the company may have difficulty making accretive acquisitions with its large cash hoard," he wrote. Since July 23, insiders have sold more than 790,000 shares, including 155,000 by Chairman and CEO Lawrence Probst and 43,000 shares sold by President and COO John Riccitiello, Pachter wrote.

He also noted that at 24, EA's forward enterprise value-to-adjusted income multiple is higher than


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14 and Take-Two's 10. His company hasn't done any banking business with any of those video game software firms within the last three years.

Electronic Arts climbed 99 cents, or 1%, to reach a new all-time high of $92 before falling slightly to $91.75 in recent trading.