If Electronic Arts was serious about buying Take-Two Interactive it should have upped the ante long before the current version 4 of Grand Theft Auto came out, which sold $500 million worth of retail business in just its first week on the shelves.
GTA as it is widely known, is legendry, and one of those few games where ALL the people that owned the previous version, feel they have to go and buy the new version, plus new customers turn up. The development team continues to innovate and stretch the boundaries are what can be done in a game and what is acceptable to the viewing public.
Even though those sales of $500 million are the retail value, about half of that would fall the Take Two’s revenue figures, and that same figure is equivalent to the last published quarter of revenues for the games publisher, itself a doubling of the previous year. All of which makes a mockery of a profitable gaming company fending off a bid which values it at one times revenues, when it is growing at almost 100%, and the bid is coming from a company growing at 20% per annum, much of it from acquisition, which is valued at 4 times revenues, but which is loss-making.
So when the board of Take-Two say they feel undervalued, it is but the work of a moment for analysts and shareholders to agree with them.
This week the bid of $25.74 per share in cash, was extended yet again, the fourth time the time frame has been extended, but the offer not improved and yet only 8% of shareholders have so far thought it worth accepting the EA offer, says Take-Two.
Initially the first offer from EA was tainted in that it had lots of conditions attached and was based on common stock, but since then EA has actually reduced the value of its new offer, because it was in all cash.
The performance of EA with losses of $454 million for last year, partly due to an increase in cost of goods sold, a shift in its mix towards online titles where more revenue is deferred, and also more in-process work through acquisitions and other operating increases, all bears testament to the fact that the world probably doesn’t want all of its independent games companies wrapped up into just one. EA only enjoys that huge valuation because of its enormous size and cash generation, but at the current run rates Take-Two is more than half the revenue of EA, and growing faster and an offer of anything less than $33 a share is unlikely to change the minds of a significant number of its current investors, especially now GTA 4.0 is out of the bag.