Sports games alone justify EA's Take-Two offer, says Pachter

Wedbush Morgan Securities analyst Michael Pacther said that sports games, not Grand Theft Auto alone, provide the impetus for EA's offer to purchase Take-Two.

"EA is in a unique position to purchase Take-Two, but I didn't think they would," admitted Pachter.

Speaking to GamesIndustry.biz, he said that he thought it would be cheaper for EA to compete with Take-Two and force them out of the sports business.

The media may think of Take-Two mainly in terms of GTA, but there is more to it than that.

"In fact, GTA is worth a ton, but probably less of a driver in this acquisition than everything else," he said.

For starters, there are no guarantees that EA will be able to keep the creative talent behind GTA in place. Pachter pointed to EA's experience with the Medal of Honor team that left the franchise and went on to create Call of Duty.

"I would really be surprised if the Rockstar North guys all go to work for EA," he said, suggesting that it may not be their style.

"The part of the acquisition that has really low risk is sports. You know for sure if EA buys Take-Two they will not have two separate teams making two NBA games...That will all get consolidated."

With competition from Take-Two, EA has had to cut the price of its sports games - something that Pachter doesn't see happening any longer.

"Sports [games] only make sense as a big business if you have pricing power because you have to pay the license fees to the leagues," he noted.

The purchase offer makes sense for EA on that basis alone.

As for Take-Two development studios such as Firaxis and 2K Boston / 2K Australia (formerly known as Irrational), Pachter thinks that EA will treat them with respect and give them the resources they need.

If the company manages to keep the GTA talent as well, the franchise will have a tremendous amount of value.

"What I am really baffled by is why Take-Two's board rejected [the offer]," Pachter said, noting that he doesn't expect anyone else to offer a competing bid.

One possible explanation may lie in the timing of the offer, which was originally made on February 6 and rejected by Take-Two on February 15.

On the same day it sent a letter to EA rejecting the offer, Take-Two announced that it had named Strauss Zelnick executive chairman and extended an employment agreement with CEO Ben Feder. The company also filed an 8K form with the SEC detailing a restricted stock award to management.

Had Take-Two agreed to the offer, it may have affected the restricted stock options granted on February 15 - which, in any case, still need to be approved by the company's shareholders.

"If I had to spin this, it is an unbelievable deal for Take-Two shareholders - they should jump at it," Pachter said.

"At the same time, it is a modestly nice deal for EA because I'd say there is a ton of synergy here."