Take-Two vulnerable despite $500M blockbuster
By Yi-Wyn Yen
Take-Two Interactive’s management is rallying behind the videogame company’s impressive release of Grand Theft Auto IV last month, but its $500 million opening week may not have been good enough to impress shareholders or ward off a hostile takeover from EA.
Take-Two’s popular franchise, which was released on April 29, crushed Halo 3 in video game sales records and even surpassed movie ticket sales for Spider-Man 3, the blockbuster movie with the highest grossing opening week.
But investors haven’t been inspired to value the company any higher since Grand Theft’s results were released Wednesday morning. Take-Two’s shares shot up 55% after EA announced its unsolicited $1.9 billion offer on Feb. 25, and have remained relatively steady since then. Prior to the bid, Take-Two’s stock traded in the mid-teens.
“Take-Two is totally justified in being very proud of Grand Theft Auto, but this goes to show you that the company is not worth any more today than it was on Feb. 25,” said WedBush Morgan analyst Michael Pachter. “The first-week results have changed nothing.”
Take-Two is banking on its best bargaining chip, GTA IV, to show how valuable the company is to potential buyers. GTA IV sold more than 6 million games in its opening week for more than a half billion worldwide. Halo 3, a Microsoft (MSFT) Xbox 360 exclusive, was the previous record holder with its $300 million first-week launch. Spider-Man 3, the No. 1 box office opener, brought in roughly $382 million worldwide in roughly the same time frame, according to Box Office Mojo.
The box office comparison isn’t “apples to apples” since videogames cost about six times more than a regular movie ticket, but that didn’t stop Take-Two (TTWO) from vigorously bragging about its new record. “This is the largest entertainment release for a first week launch,” Take-Two CEO Ben Feder told Fortune. “What it says about Grand Theft Auto is nothing less than remarkable.”
Analysts expect Take-Two to rake in more than $1 billion in GTA IV revenue by selling roughly 18 million copies through 2009.
There are concerns that without GTA, Take-Two is simply a one-hit wonder. “Every couple years it has a windfall product launch based on a really valuable [intellectual property] and it’s really lean in between those years,” said John Taylor of Arcadia Research. “For Take-Two so much depends on when the next shipment of Grand Theft Auto releases.”
Feder says the company is not just about the GTA franchise. “Take-Two is uniquely positioned in the industry and has the broadest array of intellectual property,” he said.
EA (ERTS) went hostile with its all-cash offer when Take-Two’s management rejected its bid in late February. It has given Take-Two shareholders until May 16 to consider its tender offer.
However, that doesn’t mean that EA and Take-Two’s management aren’t in negotiations. Take-Two’s chairman Strauss Zelnick said he would be willing to talk with EA or any other interested buyers the day after GTA IV’s launch. Last month Zelnick said at a shareholder meeting that he refused EA’s offer prior to that date because it was “highly opportunistic and poorly timed” to get the most out of Grand Theft Auto.
Feder and an EA spokesman said they had no comment on whether the parties are currently in talks
The alternative for EA is to simply walk away from the deal. But analysts say that is an unlikely scenario. They still anticipate the deal to go through, though at a slightly higher share price between $26 to $28. A dilution of shares awarded to Take-Two’s management has reduced the value of Take-Two’s original offer price by 26 cents to $25.74.
“Will EA go higher? Of course they will. But if Take-Two sits down and they want $30, that’s not possible,” said Pachter. “Are EA and Take-Two talking? Of course they are. The question is, will the two sides come up with a reasonable compromise.”
be very warry of Pachters motives here! Take Two has some very good talent and makes some very good games. Management has been questioned because of missteps and delays. It turns out that delaying a product so you get it right isn’t such a bad thing after all. What EA is lacking is the brilliant storytelling and cutting edge videocrafting that Take two posseses. What Take two is lacking is the disciplined stock holder driven deadlines and big company know how EA has behind it. This marriage should not only work but it should propel ea forward to bigger and better games. Im long Take Two because I believe in the artist. I am long EA because I believe in the system.
If you own TTWO shares or Electronic Arts you’d care…
I own 200 shares of TTWO. I received the packet with the EA offer @ $26. I am also a gamer, and own GTA IV for the XBox 360. The value of the IP that Take Two has is incredible. Half a billion dollars spent on GTA IV. In two years time how much will GTA V be worth? Investment is long term, not slash and burn. A BioShock movie? Excellent! GTA Movie, mini series.. all potentials. It is not one game or two it is the rights. Ask George Lucas about that.
Rick Stewart (above) doesn’t really get it. “ITS JUST A GAME!” doesn’t make sense to say when you’re talking about ‘JUST A GAME’ that does more for a company than any other entertainment title has done for its company in the history of entertainment.
Game or not, it’s huge.
I’d also like to add that TakeTwo isn’t a one-hit wonder. BioShock, 2k games, Max Payne, Midnight Club. Hell, I think the last Midnight Club sold something like 4 million copies. Thats hard to ignore, isn’t it?
One hit wonder? Looks like the analysts failed to do their research as usual. What about Bioshock? It managed to sell almost 2 million (with a sequel coming up) and they also have their sports franchises (MLB, NBA, NHL) which have been pretty competitive with EA sports’ lineup. It’s not all about GTA IV!
I think the market gets more than you do- We are already a buck over the bid, and GTA sold out in many places, let’s see how the strength continues before we rush to judgement.
Also, most of what I read ignores BIOSHOCK, 2k2, these guys are NOT one hit wonders, besides, GTA5 is a shoe-in!
EA is smart. I don’t think Take Two has any way out of this deal. If shareholders sell their share knowing $500MM will not make them any richer, they would best accept EAs offer before other shareholders sell the stock, bringing the price down.
The article makes a good point about Take Two. What other franchises do they own that brings in the dough? If GTA is their big “money maker” and shareholders aren’t getting any richer…well then I guess we know what will happen.
EA would surely ruin GTA like the do whenever they take over a game franchise. They killed sports game and if GTA goes EA then you might as well call it Grand Theft Grand Theft Auto. It would never be the same again. Keep it real Take Two, or the video game business will sink lower, meaning one developer. EA is to video games as Standard Oil was to Oil. Buy up all the competition, why…because they can.
That’s what stupid Lawyers get who try to sue companies that make games like this. Do any of you honestly think the game would have done so well with all the the advertising done? Take – Two probably accounted for 5-10% of the advertising. The rest was done by people trying to get others and parents not to buy the game. All of them did the exact opposite and made GTA 4 the highest grossing game of all time
I WANT TO KNOW WHY WE NEED 1000 DIFFERENT F***ING STORIES ABOUT THIS. GIVE IT UP…ITS JUST A DAMN GAME
EA wants too buy out all the devs then sell out too microsoft!
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As far as Take 2 being a one hit wonder, I’d have to kind of agree on that. GTA has all the acclaim over other R* titles out there. I noticed someone stated Max Payne, obviously they don’t know that Max Payne is a dead series now. It was dead almost as soon as Max Payne 3 was announced. Because 3-D Realms and Remedy went bankrupt (if I remember correctly). GTA is their only series that has ever and will ever exceed expectations and keep R* and Take 2 going. Take notice at how many times they keep milking one installment. Vice City and San Andreas only added new aspects of old gameplay, the graphics and physics got slightly better but overall you were still playing the same game, then there’s the Stories installments, those two showed that the engine running the GTA series had been maxed out. Everything after GTA III were just expansions. They use those to try and hold you over until they can release info on the next game. This is obvious by just looking at the title of the newest GTA, GTA IV. Now look at all the other games they’ve made. The Warriors, Bully, Red Dead Revolver, Manhunt and a few others. Most of these have gone unnoticed compared to the behemoth that is GTA. All of those above are great games too. But people only care about GTA.