By Yi-Wyn Yen
April 18, 2008

By Yi-Wyn Yen

Watching the latest saga between video game publishers Electronic Arts and Take-Two is like witnessing two rival tennis pros throw flowers at one another.

On Friday, EA (ERTS) and Take-Two (TTWO) engaged in a press release battle that did not bring them any closer to reaching a deal.

EA extended its $2 billion tender offer to purchase the maker of the highly-anticipated Grand Theft Auto IV by 30 days. Though the all-cash bid remains the same, EA lowered its per-share price to $25.74 from $26 to reflect a dilution of additional shares that will go to Take-Two’s management. Take-Two closed at $25.98 on Friday.

EA’s deadline for Take-Two shareholders to accept the offer was originally set to expire at midnight Friday, but so far the gaming giant has won just 8% of the total shares it needs. In a statement, EA said it “continues to believe that the offer price is full and fair.”

Shortly after, Take-Two retaliated by firing off its own release. The company’s chairman, Strauss Zelnick, called the 6.4 million shares that were tendered “minuscule.” On Thursday evening at the annual shareholder meeting, Take-Two shareholders backed a proposal to give ZelnickMedia, the consulting firm that manages Take-Two, 1.5 million shares in restricted stock. Zelnick said that was “indisputable evidence” that its stockholders think its share value is “superior to the EA offer.”

EA has argued that the vote to back Take-Two’s management does not reflect the majority of Take-Two’s shareholders because they weren’t eligible to vote. Only those who held the stock prior to Feb. 19 were allowed to attend the meeting. Analysts estimate that between 50% to 70% of Take-Two’s stock has been sold since EA went public with its takeover bid on Feb. 24. An EA spokesman likened rewarding ZelnickMedia, which is expected to get a windfall if the company gets sold, to “having your last employer give you a million dollar bonus that your new boss is forced to pay.”

Take-Two refuses to talk with EA until after April 30, the day after GTA IV launches. Analysts expect the company will sell roughly 15 million to 20 million copies through 2009. Take-Two’s board unanimously rejected EA’s offer because it was “highly opportunistic and poorly timed” to get the most out of GTA, Strauss said at the shareholder meeting.

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. Take-Two shareholders have until May 16 to consider the tender offer.

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