The Waiting Game

The saga unfolding between Electronic Arts and Take-Two has, it seems, at least another couple of months left to run. EA's original deadline for the uptake of its offer to Take-Two's shareholders sailed past us last Friday - a date marked by the giant publisher with the corporate equivalent of a nonplussed shrug, and an extension to June 16.

Even if EA's corporate communications boss, Jeff Brown, now rates the chances of a deal as being fifty-fifty - an assessment delivered, once again, with a carefully pitched nonplussed attitude - it's rather telling that EA isn't letting the matter drop. It wants Take-Two. It wants Grand Theft Auto, of course, but it also wants Rockstar Games as a whole, it wants to complete the EA Sports range using 2K Sports' teams and licenses, and it wants the strong IP generation Take-Two's labels have displayed in recent years.

On the other hand, it's equally telling that EA's extension of its offer is merely that - an extension. No premium is being offered on the original price, despite the fact that Take-Two's stock value tipped above the offer price last week. Shareholders are merely being told that they have a few more weeks to think about what they're doing - to think about it really carefully, because next time it might be gone for good.

Anyone who's followed the business history of these two companies in recent years can tell you that in this particular game, the deck is loaded in EA's favour - and moreover, that EA can afford to wait a little while.

The fact that it's presently not offering a premium for Take-Two's shares is entirely irrelevant, because Take-Two's share price is being artificially inflated by the EA offer anyway. Until EA made its bid public, TTWO hadn't nudged north of $21 for any significant length of time since mid-2005. EA's $25.74 offer drove the share price up to almost $28 immediately, and since then it's fluctuated around the $25 to $26 range, but has essentially remained steady on this new, acquisition-inflated plateau.

There's an even more important piece of information in Take-Two's share price chart than the fact that its present level has been inflated by the EA bid, though. Conspicuous by its absence is any upturn in the company's stock performance at, or in the wake of, the launch of GTA IV.

$500 million in a week, and hardly a murmur in the share price - it seems bizarre to anyone not versed in the stock market's workings, but the fact is that it merely confirms what EA has been saying all along. GTA IV was already factored into Take-Two's share price when EA made its bid - weaker than expected sales would have caused a dip, stronger than expected could have caused an upturn, but the reality is that GTA IV performed pretty close to expectations, vindicating EA's position that its success would not justify a further premium on Take-Two.

EA can afford to wait, too, because it knows - as everyone else in the industry does - that this is Take-Two's high point. Major GTA releases aren't just the jewel in the crown for Take-Two, they're the entire set of crown jewels - and the rest of the company's line-up of software barely registers as the display case. Despite turning out some really great, creatively inspired, high production value products in the past few years, Take-Two remains "the GTA company", and everything else is a snack between meals.

Regardless of the success of GTA IV, then, Take-Two remains essentially a vulnerable company. They own one of the most valuable properties in interactive entertainment (indeed, arguably one of the most valuable properties in any form of entertainment), but it's a feast every couple of years rather than a breadwinner every quarter. EA knows that, and it knows that as it becomes apparent that there's no "new GTA" in the wings for the next quarter, or the next, or the next, its offer will become increasingly attractive.

Which raises the obvious question, of course. Take-Two's board know this, and many of Take-Two's shareholders know it too - so why are they waiting? Despite the posturing from Take-Two's board, it's hard to see how EA's offer is undervaluing the company - and pointing at GTA IV's sales is an appeal to emotion, not to financial reason.

The simple reason for this whole lengthy, drawn out drama, I suspect, is that Take-Two's board simply don't want to sell out to the first offer that comes knocking - and that, buoyed by the success of GTA, the firm's shareholders agree. For all the talk of investment from outside the games industry, there have been few significant acquisitions of publishers by external corporations in recent years - Take Two, no doubt, feels that one of those bidders could be attracted to the fray by all the noise being made around EA's semi-hostile bid.

Perhaps the company is already talking to other potential suitors, informally - or perhaps it's just going out on a limb and seeing if there are any other bites. Its shareholders will be watching intently to see if this is the case - but if not, I suspect that more and more of them will start taking up EA's offer. As the fervour around GTA clears, I suspect that many investors will simply decide that there's a better place for their money than a publisher which may lay the world's best golden eggs, but only lays them once every couple of years.

Fifty-fifty seem like pretty conservative odds on this deal going through, then - unless, of course, another suitor pops up out of the woodwork. If that happens, all bets are off; and if it's a major non-videogaming player behind it, you can expect to see EA really taking the gloves off, and this fight getting really messy. Either way, it's going to be an interesting few months.