Electronic Arts Backs Away From Take-Two

(AP)  Video game publisher Electronic Arts Inc. said Sunday it ended talks to buy smaller rival Take-Two Interactive Software Inc., best known for the "Grand Theft Auto" series of games.

EA, the publisher of games such as "Madden NFL 09" and "Spore," said it decided not to make an offer to buy Take-Two.

Redwood City, Calif.-based EA had signed a non-disclosure agreement with Take-Two in August after letting a deadline for a $2 billion tender offer to buy the company expire.

"EA is tracking toward a record-breaking year," said President and Chief Executive John Riccitiello, in a statement. Spokesman Jeff Brown said Sunday EA is "not at all" disappointed that things didn't work out.

Brown did not say what prompted EA to walk away from the discussions, but he said the company is confident in its own product portfolio. Take-Two, he added, was "never something EA needed."

Since making its offer public in February, EA has maintained that it was offering a "fair and full" price for New York-based Take-Two. And while keeping the total price of the bid at $2 billion, it lowered the original $26-per-share offer to $25.74 to account for restricted shares granted to Take-Two's management.

The company also stressed that timing was critical for any deal to go through, because it wanted to put its considerable marketing muscle behind Take-Two's titles ahead of the holiday season, when video game companies make most of their money.

Take-Two, meanwhile, said the offer undervalued the company, and repeatedly rejected it. Strauss Zelnick, the chairman of Take-Two, said in an interview Sunday the focus remains on building the company.

"We didn't set out to be in this situation," he said. EA came to Take-Two with an unsolicited bid, although it "wasn't our job to enter a discussion to sell the company."

While he also did not specify why the talks fell apart, Zelnick said EA, "made it very clear" they weren't willing to raise the price.

Zelnick took over as chairman of Take-Two after a March 2007 shareholder coup ousted most of the company's top executives and board members over poor results, accounting troubles and controversy surrounding violent and sexual content in games.

Several former executives, including ex-Chairman and CEO Ryan A. Brant, pleaded guilty in 2007 to falsifying business records after a probe into backdated stock options.

Riccitiello took over at EA in April 2007, and has worked to revitalize the software publisher, which has been under pressure from investors to improve its creativity and rely less on sequels of existing hits. This is something the Take-Two acquisition could have helped accomplish.

While many analysts expected EA to eventually boost its offer by a dollar or two, recently Take-Two shareholders seemed less optimistic. On Friday, the company's shares were at their trading at their lowest since Feb. 22, the last trading day before EA made its offer public and sent Take-Two's shares shooting up 55 percent.

Wedbush Morgan analyst Michael Pachter said he thinks walking away may simply be "posturing" on EA's part.

"Nothing is terminal," he said Sunday. They could walk now, but in a few months may be back - with a lower offer price, he said.

Zelnick said Sunday Take-Two remains focused in creating value for its shareholders and customers, and has been since EA first launched its hostile bid.

Now, he added in a statement, the company remains "actively engaged in discussions with other parties in the context of our formal process to consider strategic alternatives."

Take-Two spokesman Ed Nebb said Sunday the company is not disclosing more information on those talks.

Pachter said he doesn't think "anyone can make a deal" above the $25.74 that EA has offered.

EA said it continues to have a "high regard" for Take-Two's creative teams and products. But, after a "careful consideration," including viewing presentations by Take-Two's management and reviewing due diligence materials, it decided not to make an offer.

"At the end of the day, we simply have different views on the value of the company," Brown said.