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TECH Take-Two urges shareholders to reject Electronic Arts' bid

By Steve Johnson and Mike Antonucci

McClatchy Newspapers

SAN JOSE, Calif. — Take-Two Interactive Software on Wednesday advised its stockholders to reject Electronic Arts’ $2 billion hostile offer and adopted a so-called poison-pill plan to deter the takeover bid.

But Take-Two also said it would consider merging with the Redwood City, Calif., videogame maker.

The board of New York-based Take-Two, publisher of the hugely popular "Grand Theft Auto" series, previously had rejected EA’s $26-a-share cash purchase offer. As a result, EA announced on March 13 that it was launching a hostile takeover effort by contacting Take-Two stockholders directly and asking them to sell their shares at that price.

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In recommending against EA’s offer, Take-Two’s board said it had unanimously determined EA’s bid to be "contrary to the best interests of Take-Two’s stockholders." Nonetheless, Take-Two’s board said it would "explore alternatives to maximize value for stockholders, which may include a business combination with third parties or with EA."

EA issued a statement saying that, "By advising its stockholders to reject the offer, Take-Two’s Board is exposing them to further delays which may reduce the value and the certainty of a potential transaction."

Wedbush Morgan Securities analyst Michael Pachter called Take-Two’s rejection of EA’s offer a mistake.

"We believe that the company was positioned to extract a higher offer from EA by offering a friendly transaction, and its Board chose to continue its adversarial posture," Pachter wrote in a research report.

The poison pill plan would begin if an investor acquired 20 percent of Take-Two or if anyone already owning more than 20 percent bought an additional 2 percent stake. Poison pills are often designed to stave off hostile bids by issuing new shares of a company targeted for a takeover and thereby increasing the cost of the proposed acquisition.

Take-Two said it would consider a deal after releasing its "Grand Theft Auto IV" game April 29, adding that it "has received indications of interest from third parties with respect to possible business combination transactions" since EA proposed buying Take-Two.

At an investor presentation Wednesday in Boston, Take-Two Chairman Strauss Zelnick called Electronic Arts’ offer "inadequate in multiple respects" while delivering an upbeat estimate for Take-Two’s growth this year.

Zelnick said Take-Two’s full market value — the company’s stock rose 9 cents to close at $25.91 Wednesday — would be more apparent after the release of the latest version of Grand Theft Auto.

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Asked if any legal or financial complications from EA’s bid could alter the timetable for GTA IV, Take-Two Chief Executive Ben Feder said the company is "fully confident in the April 29 release date."

Zelnick repeatedly stated that Take-Two, sued earlier this month by a shareholder critical of the outright rejection of EA’s offer, is "100 percent committed to doing the right thing by stockholders."

He described a variety of scenarios, ranging from continued operation as an independent publisher to combining operations with another company and potentially "beginning preliminary discussions right now" with EA.

In his report, Pachter disagreed with Take-Two’s claim that it will have greater value after the release of Grand Theft Auto IV, calling that position "naive at best, and disingenuous at worst.

"It is inconceivable to us that there are any Take-Two shareholders (current or prospective) who are not aware of the upcoming release of the game, and we do not believe that the game’s reviews or first week’s sales will ultimately impact the company’s valuation in any meaningful way," Pachter concluded.

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