Take-Two Rejects EA's Hostile Bid

First, in the words of Take-Two Interactive, "The Board of Directors of Take-Two Interactive Software, Inc. today announced that it has thoroughly reviewed Electronic Arts Inc.'s unsolicited conditional tender offer with the assistance of its financial and legal advisors and unanimously determined that the $26.00 per share cash offer is inadequate in multiple respects and contrary to the best interests of Take-Two's shareholders."

Take-Two has also taken several defensive actions, including issuing new voting rights. The shareholder rights agreement is a "poison-pill" type deal designed to thwart an acquisition by issuing additional shares to certain investors if an entity acquires more than 20% of Take-Two's stock, thereby making acquisition difficult and more expensive, if not outright impossible. Along with amending the company's bylaws, Take-Two Interactive has pushed its general shareholder meeting back by a week to April 17 (the original date of the meeting was prior to the expiration of EA's offer).

Furthermore, the company has updated the employment agreements with Lainie Goldstein (the company's Chief Financial Officer), Seth Krauss (Executive Vice President and General Counsel) and Gary Dale (Executive Vice President) making changes such as increasing their salaries, indemnifying them for certain problems and increasing their benefits if terminated.

The financial community is upset with Take-Two's actions, with the consensus view being (as we have previously suggested) that Take-Two's rejection has to do with Take-Two's current management's desire to extract value from Take-Two and does not remain true to the company's fiduciary responsibility to shareholders. Take-Two still claims that it will explore alternatives, including acquisition, after the release of Grand Theft Auto IV. Frankly, Take-Two's arguments for a higher price don't hold water. For example, rather than arguing that EA's $26 per share offer doesn't reflect the value of Take-Two Interactive as it is currently, Take-Two Interactive's leadership argues that it doesn't reflect "the value of revitalization efforts...underway at the company" (that have not yet shown results) and that the offer "does not compensate stockholders for the value of the significant synergies EA would realize from the potential transaction" (values that are not intrinsic to Take-Two).

Class-action lawsuits are already underway, arguing that Take-Two has violated its fiduciary duty and should accept EA's offer. Take-Two has filed a supplement with the SEC claiming that EA's proxy statement is misleading, trying to stop class-action lawsuits in the bud. Unfortunately for Take-Two, Take-Two's leadership seems to be, frankly, in the wrong. Take-Two needs to make a better case that its actions are in the interest of general shareholders, and not the activist investors who recently took control over the company and currently manage Take-Two Interactive.