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This time, home runs and foul shots trump stolen cars and machine guns.
Although much of the attention in Electronic Arts Inc.'s hostile takeover bid for Take-Two Interactive Software Inc. has focused on Take-Two's popular but controversial Grand Theft Auto video game franchise, analysts say the reason for the deal is control of the coveted sports game genre.
Take-Two, under its 2K Sports brand, stands alone as EA's chief competitor in sports games, a consistently profitable genre in an otherwise volatile industry.
Games such as Madden NFL Football, NBA Live and NHL Hockey spawn new editions annually and are the cornerstones of EA's business, accounting for between 25 and 30 per cent of its revenue. Analysts believe EA, the world's largest independent video game producer, made its move because it grew tired of Take-Two's competing franchises dragging down prices and poaching sales.
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"It's a thorn in their side and they want these guys gone," Wedbush Morgan Securities analyst Michael Pachter said. "EA's two choices are to drive Take-Two into bankruptcy or buy them."
EA's top sports title, Madden NFL Football, sold more than seven million copies last year and accounts for nearly half of all sports games sales in the U.S. market.
On Sunday, EA announced it was taking its $1.9-billion (U.S.) takeover offer directly to Take-Two shareholders after the target company's board of directors and chief executive, Strauss Zelnick, rejected a $26-a-share bid.
Even though Take-Two's sports games are widely regarded as technically superior to EA's competing titles, they command a much smaller portion of the market and the division continues to bleed money.
EA may be forced to sweeten its offer, however, after Wall Street drove shares of Take-Two up nearly 55 per cent yesterday. And with Grand Theft Auto IV -- expected to be Take-Two's biggest release of the year -- due to hit stores in April, the price is expected to go up.
Although they sell consistently well, sports games tend to produce lower operating margins because studios must pay licensing fees to the leagues for using trademarks such as team names and uniforms; EA's exclusivity deal with the NFL reportedly costs the Redwood City, Calif., company upwards of $60-million a year in licensing fees.
In addition to NFL football, EA also produces market-leading college football, college basketball, hockey, soccer and golf games. Take-Two includes both basketball and hockey games on its roster, but also produces a baseball game.
The takeover attempt comes amid revelations of changes in Take-Two's management deal with ZelnickMedia, the firm that supplies the company with its top executives.
EA sent its first takeover proposal to Mr. Zelnick and the board at Take-Two on Feb. 6, offering $25 a share for all outstanding stock. On Feb. 14, the day before the company rejected that proposal, Take-Two filed an 8K Form with the U.S. Securities and Exchanges Commission which proposed raising ZelnickMedia's monthly payment from $62,500 to $208,333 and increasing its annual bonus to $2.5-million from $750,000. The revised deal also includes a grant of 600,000 shares of restricted Take-Two stock to ZelnickMedia to be vested over a three-year period. However, the shares immediately vest to ZelnickMedia if Take-Two were to receive a public takeover offer.
ELECTRONIC ARTS (ERTS)
Close: $47.14, down $2.60
TAKE-TWO (TTWO)
Close: $26.89, up $9.53
