Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

June 11, 2008 -

In our previous GamePolitics story we described how the Federal Trade Commission went to U.S. District Court in an attempt to force Grand Theft Auto IV publisher Take-Two Interactive to cooperate in an anti-trust investigation related to Electronic Arts' potential takeover of T2.

So, why would Take-Two thumb its nose in the government's face, even to the point of reneging on previously agreed-upon conditions?

We asked financial analyst Michael Pachter (left), who covers the video game sector for Wedbush-Morgan:

I think that the reasons range from A) being incredibly savvy and holding off the FTC as a tactic to slow the process to Z) being incredibly arrogant.

 

It's hard to know where Take-Two fits on the scale from A to Z.  Their general counsel is pretty experienced, and it surprised me that he would allow the company to deal with a subpoena this way.  The FTC's action of seeking a court order is pretty severe, and shows how seriously the FTC takes this slight.

 

I'm not sure what Take-Two hopes to gain from this, other than the obvious delay to the process.  However, the process won't be delayed if Take-Two's failure to comply with the subpoena results in the FTC granting approval without looking at these documents. There is NOT a presumption of anti-competitiveness, and if EA demonstrates that the combination would not be anti-competitive, Take-Two would be better served to provide evidence to the contrary if it wishes to remain independent.

 

It seems to me that they would be best served by cooperating fully with the FTC, and by pointing to records that show how competitive their business is with EA's business.  Apparently, they have reached a different conclusion.

 

 

UPDATE: So, what's to be gained by delaying? We put that question to Pachter as well:

I think it's always in their best interest to buy more time.  Management has an incremental 720,000 shares of restricted stock that vest if the takeover happens after March 31, 2009.  More time buys them a greater ability to prove the impact that they've had on the company, and they appear sincere in their belief that they have turned Take-Two around.  More time allows Activision to close its Vivendi deal and give Take-Two a look.  Ubisoft might be interested...

 


Comments

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

Maybe this is the start of a new cold war, all T2 need to do is ally with ubi & acti-blizzard & they can be NATO to EA's USSR. Wonder who'll be the first to let fly with the nukes...

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

Sooo, yeah...this is a big ol' clusterfuck then?

-If shit and bricks were candy and tits, we'd all be livin' large.

Reality/////////////////////////////////////Fantasy. Seems like a pretty thick line to me...

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

When has "reasonable" been a prerequisite for any action by any government agency at any point in time?

@Paralax Abstraction

Part of analysis is "pulling information out of thin air". Now, I agree that Patcher doesn't really know what he's talking about, but an analysts job is to draw conclusions on future events even if no data saying it's happening is present.  

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

So.... you are saying that it is his job to make shit up on the fly. Got it. I wish I could get paid to do that.

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

Sadly, yes, that would be fairly accurate. Usually though, the analysts are supposed to look at past data to make their decisions. The video game industry analysts seem woefully inadequate in this regard.

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

*sigh*  And once again we have Pachter proving he doesn't know what he's talking about and getting attention for it.  He said the EA takeover was a done deal right from the beginning and he's continued to slowly back away from that position with each new deadline extension.  He's also continued to insist that EA only wants Take-Two for its sports business which is ludicrous since Take-Two has continued to state that their sports group isn't even profitable.  And now he's talking about Activision and Ubisoft as potential suitors as if that news didn't already come out several days ago.  Like most analysts, he's pulling this information out of thin air and acting as if it's a sure bet when it's far from it.  I really wish I knew why the gaming press (not specifially GP, the entire gaming press) loves to keep going to these people for information when they clearly have no better an idea what's really going on than anyone else.

Because Pachter "was" right, at the time.

Pacher's prediction that an EA takeover was "all but certain" was a good call at the time.

Had Take Two not used some very risky and atypical procedural stonewalling (of questionable ethics) to purposefully slow down the deal, pacher probably would have been right.

Think about it like this, you're driving behind a truck on the highway.  He's got his turn signal on to exit at the next junction. You would be "all but certain" that the truck would make it to the exit.

Except right before that exit, a tree falls over the highway and stops the truck cold.

Predicting that Take Two would have the balls to give the FTC the finger is like predicting a specific tree is going to fall.  Take Two decided to go down a very uncommon road.

Pissing off the FTC is a very risky bet that could really come back to bite them in the ass.  Maybe it will get some other buyers in the game, maybe not.  What if the FtC rules that EA can't buy Take Two's sports franchises?  EA would probalby back off of the deal entirely.  Then what if no other buyers came around? 

If the EA buyout is blocked and no other buyers come around, Take Two's stock could tumble to the level it was before EA took interest.  It's a risky path Take Two is taking.

Analysts have to go with the info they've got at the time.  With the info we all at the time, the deal 'did' seem inevitable.  It was a good call by Pacher, at the time.

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

Hard to be profitable when your competitor is muscling everyone else out. Also, I doubt EA is going t orick 2K sports getting profitable.

-kurisu7885

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

An addendum to A). It slows the process, AND allows them the ability to fight it out in court. They've been told to appear before the court to explain themselves. This gains them time to appeal, time to argue, time to stall, etc.

Also time to argue their point about not being the ones pushing for the merger, so why should EA get to see internal company docs (which they might get a glimpse of if they handed them over).

-- If your wiimote goes snicker-snack, check your wrist-strap...

-- If your wiimote goes snicker-snack, check your wrist-strap...

Re: Pachter Analyzes Why T2 is Stonewalling the Feds on EA Deal

I wonder Who t2 is really holding out on.  It seems to me that they want more money and it be from someone else.

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