Take Two shares rise as Acti buyout rumours swirl

Take-Two's share price rose nearly five per cent to 23.66 on Friday as rumours circulated that the publisher may be the target of a potential takeover by Activision.

Mike Hickey, an equity researcher for the Benchmark Company, penned a note which fuelled the trading, claiming that the two companies were engaged on an "emerging romance".

"For Activision, acquiring Take-Two Interactive would be a no-brainer, in our view, circling some of the strongest development talent and owned IP in the world, within a company that has nearly $1 billion in cash and trades at a comparably lower multiple," Hickey's report reads. "With the acquisition of Take-Two Interactive, Activision would have arguably the three strongest development studios in the world with Rockstar Games, Bungie and Blizzard."

By acquiring Take Two's portfolio, Hickey believes that Activision could offer a rolling catalogue of massively high-profile AAA console titles, capitalising massively on the tremendous performance of the current generation of new machines.

"The opportunity for Activision to intelligently layer future releases from Rockstar, Bungie and Blizzard, could in-part enable Activision to annualize future performance from what today is arguably a less linear performance profile"

Mike Hickey, Equity Researcher, The Benchmark Company LLC

"While Activision has historically managed their performance profile around franchises they can annualize, their $500 million investment in Bungie seems to be a departure from that philosophy, as we suspect the venture will prove difficult to annualize. The opportunity for Activision to intelligently layer future releases from Rockstar, Bungie and Blizzard, could in-part enable Activision to annualize future performance from what today is arguably a less linear performance profile.

"We would also note that Activision's mega performance foundation with World of Warcraft is trapped within a life cycle decline, their Skylanders franchise will face considerable pressure from Disney and Call of Duty is vulnerable to franchise fatigue from consistent annual iterations. Therefore, acquiring GTA, Red Dead, Borderlands, NBA 2K, BioShock... etc. Along with the potential performance opportunity from a new MMO and movie adoption of GTA from Rockstar Games... Acquiring Take-Two Interactive would seem like a very smart move for Activision."

Hickey doesn't see the potential deal being motivated entirely by a desire for direct growth, however. He points to shared cinematic ambitions as the key factor in any merger. Activision has close ties to Hollywood, and its attention, as evinced by the recruitment of superstar Kevin Spacey for the latest Call of Duty title. Take Two is rumoured, not for the first time, to be shopping around for a potential film adaptation of Grand Theft Auto, something which Activision's capital and connections could make a great deal easier.

"Activision's MO is relatively anti-risk and it has a calculated long-term growth strategy based on establishing and developing billion dollar franchises that unlock large amounts of value for the company"

Piers Harding-Rolls, Director, Head of Games, IHS

"We suspect that Activision's strategic alignment into the movie business, could in-part be related to an emerging romance wrinkle between the two companies and the Houser's, leading toward a possible Take-Two acquisition," Hickey continues.

Some other analysts are more cautious, however. Piers Harding-Rolls, head of games at major analyst IHS, doesn't necessarily see the move making sense for the larger company.

"I would file this rumour under unlikely at this point," he told GamesIndustry.biz in an exclusive statement. "Activision's MO is relatively anti-risk and it has a calculated long-term growth strategy based on establishing and developing billion dollar franchises that unlock large amounts of value for the company. Activision is well placed to deliver that once again following the Skylanders success with Destiny and I don't believe acquiring Take Two and its stable of IP fits with this strategy.

"Having said that, Activision is likely to be looking for further growth opportunities - it has yet to build a substantial games apps business and a number of its franchises are longer in the tooth or more competitively challenged than before. As such, I think we can expect Activision to be more rigorously examining adjacent markets - the movie opportunity makes sense in this context - as well as planning for the development of new franchises within its portfolio."

True or not, the note was enough to light a fire under the imaginations of traders. Take Two's stock actually reached a six year high on July 28, at 23.67, but dropped soon after. Friday's news pushed it up 4.67 per cent, with Activision's stock also rising 0.81 per cent to 23.54.

Were Kotick and Hirshberg to take the plunge, they'd have to put a more convincing offer on the table than EA managed in 2008, the last time a public offer was made for Take Two. Then, a deal worth $2 billion wasn't enough to convince Take Two shareholders, who felt that the company was being undervalued, rejecting the offer.