What if the EA - T2 Merger Had Gone Through? We Ask Pachter

December 22, 2008 -

As GamePolitics readers know, Electronic Arts pursued the acquisition of Grand Theft Auto publisher Take-Two Interactive for the better part of 2008.

Timing, as they say, is everything.

The deal ultimately fell through when EA walked away from the table in mid-September.  Since then the global economy has gone into the toilet and the supposedly recession-proof video game industry has shown that it really isn't.

But when EA made its offer to acquire T2 at $25.74 per share, the economy had not yet tanked. No one even dreamed of a Wall Street bailout, much less a potential bailout of the U.S. auto industry.

What if the deal had gone through, obligating EA to lay out huge piles of cash? Would it be like burning your savings on a new car and finding out the next day that your hours were being cut back at your job? Since the merger fell apart, EA has definitely hit a rough patch, laying off a thousand workers and shuttering some of its game development studios.

As for Take-Two, their stock will open south of $9 this morning. Since EA bailed on the merger, TTWO has plummeted, losing about 2/3 of its equity value in 90 days.

From here it seems like T2 would have been better off if the deal had gone through, but EA would have been in worse shape. But we're not experts, so we put the question to Wedbush-Morgan analyst Michael Pachter. Here's what Pachter told us:

[My answer is] totally speculative.  Had EA completed the deal, the TTWO shareholders at the time would have benefited, but other than Oppenheimer (who has been listed as a large shareholder the entire time), it's hard to say that there are many of those other shareholders still around.  I think that many of the shareholders who bought to take advantage of EA's offer were sellers when the offer was withdrawn, so only a small number of current shareholders, including Oppenheimer, were actually involved in the stock back then.

EA would be a mess had it completed the deal.  In addition to its own restructuring (which is just getting underway), the company would have been faced with re-signing the Housers and with cutting significant costs out of Take-Two in order to fully achieve synergies from the deal. 

I don't think a low cash balance [due to the T2 purchase] would be particularly relevant, since EA has a line of credit and is not burning significant cash, but it would have forced decisive action.

Notwithstanding, this is purely speculative.  I think EA would be a stronger company if combined with Take-Two, as the latter company has several valuable franchises and a combination would have given EA a near monopoly in sports.  Had they signed the Housers, EA would have been well-positioned to develop incremental new IP, and would have had one of the strongest franchises around in GTA.

But it didn't happen, and doesn't look like it will over the near term

Comments

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

As bad as it is what's happening to a lot of companies right now, I can't say I'm not enjoying the slow death of EA.

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

I just reread a bit of the articel. Yikes. To me, had EA been successful in taking them over, I think they would have likely destroyed the gta series. Remember that bond license ea got ahold of? Yep, not pleasant was it?

Battlefield Heroes

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

EA defiantly would have been worse off if the acquired Take Two. They're not well off right now, and Take Two is apparently not bring in much cash.

EA really looks like its getting to large for its own good. They've taken a the buyout approach to corporate growth - amass captial and then buy out smaller profitable companies to in turn increase profits. Problem is, that doesn't actually teach the company doing the buyouts how to be effective long-term. And I think EA is running into that problem. I think their games are costing them to much to make and I also think that EA is, as a result, going to retreat into trying to make huge bets on must-have titles. They've actually basically stated that is their plan for the future. And it is a TERRIBLE plan, so I don't see EA turning much profit for awhile.

Plus they have the DRM debacle, and they refuse to debut games for anything less than full price, even if the game they're debuting is an original, unproven IP with nearly-no multi-player and a very shot campaign *cough*Mirrors Edge*cough*.

The Honest Game - http://www.thehonestgame.org

The Honest Game - http://www.thehonestgame.org

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

EA defiantly would have been worse off if the acquired Take Two. They're not well off right now, and Take Two is apparently not bring in much cash.

The problem Take Two is having isn't that they're bringing in money, it's that their expenses are too high to let them keep much of it.

-Gray17

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

Okay, I don't like how the industry looks right now. Why? Big companies bought out the little guys. Now what? Less gaming companies and big companies doing poorly. It's just bad. Shame on EA and their greed. More studios that are independant means better quality games. So in summary EA is getting what they deserve. Fight the power. On a side note, now EA is coming out with a free pc game. Wtf? Free? I have no idea how bad this experiment is going to turn out for them.

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

 *sigh* never any speculation on how horribly screwed over consumers/gamers would be from the deal

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

My thoughts as well :S

The less companies that get assimilated and destroyed by the borg-like EA empire the better, not to mention the horrific monopoly they would have ended up with on sports games
(not that i play those games myself, but thats not the point)

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

My JT sense is tingling.....

Sortableturnip's Law: As an online discussion of video game violence grows longer, the probability of a comparison involving Jack Thompson approaches 1

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

I see what you did there.

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Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

Mine two.

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

No matter what has happened or what hasn't. I don't think that anyone in their right mind could have foreseen the events of the US Stock market the way it had been going.

Although in Australia for me, it was nice seeing the Australian Dollar to be as close to the US Dollar during the months of May to August when it was $0.90 US cents.

But when the Stock Market fell, so did the Australian Dollar.

And considering how I had to pay over $1,000 when I just brought my XBox360 and PS3 this christmas I can tell you guys that it is NOT CHEEP to buy Videogame Consoles over here in Australia.

 

As for the EA and Take Two deal, you have to make the decisions that you think is right at the time.

Look at how the gaming world (the Nintendo side of it) were in deep shock at how RARE was brought out by Microsoft and Nintendo got large sums of cash from the deal.

And that cash went into developing new deals from 3rd Party developers and also helped to make the Nintendo DS and the Nintendo Wii.

Without Nintendo selling Rare to Microsoft for all that cash that Bill Gates gave them (and the success of the GameBoy Advance), you might have thought that Nintendo might have gone bust now.

 

The buy-out of Take-Two into EA would have been a real mistake if EA would have left Take-Two in ruins if they saked their staff after things with the US economy hit hard times.

Also with the Manhunt 2 hurdles and the cost of trying to modify the game for the M rating, that would have hurt Take-Two as much as it would have been for RockStar.

There are seriously a few things inside the developers and the publishers that we on the internet are not really aware of and it is not effective to come up with rumours of what might have happened if we don't know the full details. So I might just wait to see what comes from the next few years and the people behind the scenes might want to come forward and explaied what really happened to the deal and why it was broken up.

 

 

TBoneTony

Re: What if the EA - T2 Merger Had Gone Through? We Ask Pachter

Now, I'm no stock expert, so I've never understood Wall Street that much. Forgive me if I sound ignorant, but from a typical consumer perspective, I don't see how it would have helped T2. I see it like boarding the Titanic right before the iceberg. Plus, T2 hasn't put out any big hits since EA walked away, so I don't see how it would have helped them either, until GTA5.
 
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