New York Post

Peter Lauria and Brian Garrity, February 26, 2008

The hunt is on for Take-Two Interactive.

While the video-game publisher, home to the Grand Theft Auto franchise, rebuffed Electronic Arts' $2 billion unsolicited takeover bid over the weekend, analysts think a deal could still get done at a higher price.

Shares in Take-Two surged 55 percent, or $9.53, to $26.89 on the news yesterday - the biggest one-day stock bump in the company's history. EA, the industry's largest game publisher, saw its stock sink 5.2 percent to $47.14.

Deutsche Bank analyst Jeetil Patel and other industry watchers think EA could pay, and Take-Two would agree to, a deal with a per share price in the mid-30s. So far, the Take-Two board has rejected offers of $25 and $26 per share.

"When [Chairman] Strauss Zelnick and his team assumed control of Take-Two back in March 2007, their background gave investors a pretty good idea of what they envisioned for the company: Fix the problems and sell it," wrote UBS analyst Ben Schacter in a research note yesterday.

Schacter also noted that Zelnick and other members of senior management earlier this month reworked their employment contracts to provide for an additional 1.5 million shares of restricted stock - a portion of which vest immediately in the event of a change of control at Take-Two.

Still to be seen, though, is just how friendly the process is going to be.

Yesterday was the last day for nominations to Take-Two's board of directors ahead of its annual meeting in April. EA, which still has its latest offer on the table, continues to assert it wants a "friendly, negotiated transaction," and as of press time there was no Securities and Exchange Commission filing to indicate that it was pursuing a hostile move.

But sources said EA could still pursue other hostile paths that forgo a proxy fight, such as courting Take-Two's institutional investors or making a tender offer directly to the company's shareholders.

While only EA knows how far it is willing to go to acquire Take-Two, it is widely assumed that - unlike the situation being played out between Microsoft and Yahoo! - other bidders will certainly emerge to challenge EA.

In addition to other video-game publishers, analysts think traditional media companies like Disney, Viacom, News Corp. and others could jump into the mix in the hopes of bolstering their own video-game efforts. News Corp. owns The Post.

Analyst opinions are divided over whether Take-Two is worth a price tag north of $2 billion.

While Cowen & Co. analyst Doug Creutz said a deal would help EA solidify its dominance, Stern Agee analyst Arvind Bhatia noted that excluding the hit franchise "Grand Theft Auto," Take-Two has lost nearly $200 million over the last two years.

"While we don't doubt that EA will be able to turn Take-Two around, we are not sure the returns will be adequate," he said in a note to investors.