EA Gets a Loan for T2 Takeover War Chest; Pachter Explains What it Means

Electronic Arts issued a press release late yesterday announcing that it had secured a line of credit of up to a billion dollars to fund its hostile takeover bid for Take-Two Interactive.

The money will come from Morgan Stanley, the Bank of Nova Scotia and several other financial institutions.

With GP challenged by balancing his checkbook, we turned to Wedbush-Morgan analyst Michael Pachter (left), who explained what EA is up to:

It is something that should be expected.  After [the acquisition of] Pandemic/BioWare, EA has only around $1.7 billion in available cash… The Take-Two deal is around $2.1 billion… so they’re short.  They also probably need around $400 million in available cash for working capital needs, so they need to raise around $800 million to complete the deal.  The extra $200 million is just a cushion, although I suppose it could be construed as how much higher they’re willing to go [for Take-Two]…
 
The timing isn’t particularly unusual, a bit later than I would have thought, as they should have started the process on March 13 (when they went hostile).  However, I have no experience in credit markets like we’re experiencing now, so maybe it’s normal to take 8 weeks to get something like this done.  It’s also possible that they waited for their new CFO [Eric Brown] to start in order to allow him to negotiate terms…
 
I would not read any significance into the filing, other than to say that if they want to raise their offer price [for Take Two], they will likely need a higher credit line…

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