Reuters is reporting that the Federal Trade Commission has initiated proceedings in U.S. District Court to compel Take-Two Interactive to respond to the FTC's subpoenas in relation to Electronic Arts' ongoing hostile takeover bid.

As GamePolitics reported last week, Electronic Arts placed its takeover on hold pending the FTC's review to determine whether an EA-T2 merger would violate federal antitrust laws.

GP is currently reviewing court documents. An affidavit by FTC attortney Reid Horwitz alleges that Take-Two reneged on agreements to provide documents requested by the FTC.

Horwitz also writes that the federal agency is particularly interested in the files of Take-Two CEO Ben Feder and Visual Concepts president Greg Thomas, along with several sales and marketing execs, one of whom was formerly the marketing VP for 2K Sports.

Given the government interest in 2K Sports and Thomas, whose studio creates most of T2's sports titles, it's clear that the FTC investigation is centered around a possible monopoly in sports games should the EA takeover occur.

While it may appear odd that T2 would balk at the FTC request, according to FTC attorney Horwitz, T2's position seems to be that it should not be burdened with providing the documents since it was EA that inititated the uninvited takeover attempt. T2 claimed to the FTC that it spent in excess of one million dollars in providing a limited amount of info to the agency.

Horwitz relates that, while T2 agreed to give up some of the requested employee files, it refused to provide files from CEO Ben Feder or Visual Concepts' Greg Thomas. When the FTC asked why, a Take-Two attorney replied:

These individuals were "creative types" who would leave the company rather than allow their files to be searched...

UPDATE: U.S. District Court Judge Henry Kennedy has apparently been persuaded by the government's position, and has ordered Take-Two into court on June 24th to show cause why he shouldn't rule in favor of the FTC.

UPDATE 2: A document filed by Take-Two with the Securities and Exchange Commission provides its comment on the FTC issue:

Prior to the issuance of the FTC’s subpoena and CID the Company has been cooperating fully with the FTC with regard to their review of EA’s Offer to acquire the Company. The Company has already provided enormous quantities of data and access to key executives, and has offered to provide the FTC staff with additional documents and information. Nevertheless, the Company believes the FTC’s subpoena
and CID are unnecessarily broad and would entail unacceptable additional expense to the Company. To limit the inordinate expense and labor that the FTC’s demand would entail, the Company has sought to obtain reasonable limits on the scope of the information sought. The Company will continue to cooperate actively and produce documents in response to the FTC’s previous requests, and will of course attempt to seek an acceptable resolution to this matter as quickly as possible.

As reported by Silicon Valley Insider, Take-Two Interactive execs claimed in a conference call this week that they have potential suitors other than EA. Forbes speculates that, if such suitors really exist, they might be Activision or Ubisoft.

GP: Personally, I wonder if it might make some sense for Sony to go after Take-Two. That would make the GTA series a permanent PS3 exclusive, supercharge system sales, and they could sell off the rest.

Meanwhile, GameSpot reports that Evan Wilson, financial analyst with Pacific Crest Securities, told investors that once you get past Rockstar, there's not much to like about T2:

Rockstar has supported this organization for too long and it is right to spend every dollar that it can get from Take-Two for keeping the business alive. Unfortunately, management appears to be doing the same thing without it being nearly as deserved.

 

At the same time as its cost structure is deteriorating, management is telling investors that it is the most efficient organization in the business. That simply is not true. Management talks about having a lean sales, marketing, and corporate infrastructure behind its development talent. We disagree with this as well.

Wilson also dinged Take-Two for missing release schedules and recommended that investors take EA's buyout offer before it disappears:

If it appears that virtually every major game has been delayed, you would be correct.

 

It is starting to appear that the company is back to where it started. After the success of Grand Theft Auto [IV], it will be looking at a bloated cost infrastructure relative to its revenue opportunity, which will likely be further muted by game delays and underperformance.

 

We believe that the risk of EA dropping its bid for [Take-Two] is greater than the reward of EA coming back with a modestly higher bid, and we continue to recommend that investors take profits. EA's $25.74 offer is more than fair, in our view.

According to Reuters, Electronic Arts has reached an agreement with the Federal Trade Commission to delay its attempt to acquire Take-Two Interactive while FTC investigators address regulatory [i.e. - monopoly] issues.

What might the FTC be looking into? Newsweek's N'Gai Croal covered this in great detail recently, including mention of my fears that consumers will suffer if EA is successful.

Cnet's Daniel Terdiman wrote yesterday "that [EA is] losing its credibility with each new extension." Frankly, however, I can't see Terdiman's point. Credibility is a non-issue here. The dollars - and government regulatory clearance - will ultimately dictate whether this deal gets done.

Meanwhile, on his Anti-Tust Commentary blog, attorney Matthew Wild offers some legal insight into the EA's strategy:

Under the agreement, EA must give the FTC 45 days’ notice of its intention to close.  Parties often grant the Antitrust Division and FTC more time to review their transactions with the hope of convincing the agencies not to challenge the merger or to allow them to negotiate a remedy.

The most important take-away here is that EA is obviously worried that the FTC may have some concerns about the deal. As a game consumer, it's reassuring to know that regulators are taking a good look at the proposed merger.

As I've pointed out before, EA's track record with the Madden franchise demonstrates that the game publisher is willing to lower prices when faced with serious competition. The Madden case also shows that EA will take agressive steps to eliminate its competition and, if successful, will raise prices in a non-competitive landscape.

Fortune.com reports that Ryan Brant (left), who pleaded guilty to committing massive fraud during his tenure as CEO of Grand Theft Auto publisher Take-Two Interactive, has sold his newly-started game development company.

In late April Newsweek's N'Gai Croal broke the news that Brant was back in the gaming biz as part of GreenScreen Interactive, although not as a corporate officer. Brant is barred from holding office in a public company as part of his 2007 guilty plea on fraud charges.

Of the GreenScreen sale, Fortune reports:

Brant agreed to sell the videogame company he recently founded, GreenScreen Interactive Software, to a company called Mandalay Media, whose co-chairmen are Peter Guber - the Hollywood producer behind "Midnight Express" and "The Color Purple" - and CEO Bruce Stein, a former Mattel and Sony executive...

 

According to a regulatory filing, GreenScreen and Mandalay entered into merger talks after Mandalay pledged a $2 million bridge loan, collateralized by GreenScreen's corporate assets...

 

Not much is publicly known about GreenScreen - or Brant's role in the company... Nowhere does the company's Web site mention Brant... Brant may well have turned a corner in the way he does business, choosing a quiet life of video game development over fraud and self-dealing.

New York Post reporter Roddy Boyd, who has often written about Take-Two for the newspaper, penned the Fortune.com piece.

Much virtual ink has been spilled over Electronic Art's protracted campaign to acquire GTA IV publisher Take-Two Interactive. In the latest news - as GamePolitics reported yesterday - EA has extended its deadline until June 16th.

Variety's Ben Fritz, who pens The Cut Scene blog, yesterday compared EA's takeover bid to the seemingly doomed presidential campaign of Sen. Hillary Clinton:

EA staying in this race is a bit like Hillary Clinton staying in it -- only a complete implosion by the opposition could result in a victory.

Although GP is on record as opposing the EA-T2 merger on the grounds that game consumers will inevitably be screwed in the deal, we couldn't disagree more with Fritz's conclusion that EA's campaign is fruitless.

The deal will almost certainly get done, just not at EA's current $25.74 offering price. We note comments made to GamePolitics by Wedbush-Morgan analyst Michael Pachter earlier this month when EA secured a one billion line of credit:

[EA] need[s] to raise around $800 million to complete the [Take-Two] deal [at $25.74]. 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]...
 

So, EA needs about 30-33 million shares to acquire a majority stake in T2 and has an extra $200 million to spend on any price increase. That's a potential $5-6 bump, depending upon the exact number of shares. When all is said and done, look for EA to own T2 for $27-28.

Take-Two Interactive is urging stockholders to reject today's extension by EA of its deadline to tender T2 shares at the $25.74 offering price.

Of the extension, Take Two chairman Strauss Zelnick said:

This is the same highly conditional proposal that EA offered Take-Two stockholders on March 13, 2008, which our Board of Directors thoroughly reviewed and unanimously determined to be inadequate and contrary to the best interests of Take-Two’s stockholders. As such, the recommendation of our Board of Directors that stockholders not tender their shares to EA remains unchanged...

Take Two CEO Ben Feder added:

EA’s highly conditional offer fails to compensate our stockholders for our exceptional portfolio of intellectual property... In the last several weeks, our strategy and Take-Two’s value have been vividly demonstrated by... The record-breaking sales performance of Grand Theft Auto IV... We have also just announced an agreement with Universal Pictures to make BioShock, the universally acclaimed hit video game, into a feature film... EA’s proposal undervalues our Company.

GP: The operative phrase around T2 HQ seems to be "highly conditional..."

In a move that will surprise almost no one, Electronic Arts (ERTS) has just issued a press release announcing a 30-day extension of its May 16th deadline to purchase outstanding shares of acquisition target Take-Two Interactive (TTWO). The new deadline will expire at 11:59 p.m. on June 16th.

The most noteworthy point in EA's press release is that the offer price has not changed. There had been speculation that EA would sweeten the numbers, but that hasn't happened - at least, not yet. The announcement quotes Senior VP Owen Mahoney:

Extending our offer will allow the FTC review process to continue. EA's offer price remains unchanged at $25.74 per share and our offer is still subject to conditions that include regulatory approval. As stated earlier, we retain the right to terminate the offer if the conditions are not satisfied.

EA reports that, as of last Friday, it had acquired 6.2 million shares of T2. With about 77m shares of T2 outstanding, EA would need to acquire roughly another 33m shares to acquire a majority position.

Today is the deadline for shareholders of Grand Theft Auto IV publisher Take Two Interactive to accept Electronic Art's tender offer of $25.74.

So, will the deal get done?

Probably not - at least not today. Forbes speculates that EA will extend its deadline. Adding a little sweetener to the offer wouldn't hurt, either.

Oft-quoted Wedbush-Morgan analyst told Forbes that EA screwed up by making its initial offer too high:

Wedbush Morgan analyst Michael Pachter believes Electronic Arts started by offering too much for the company. EA could have started its bidding at $22 a share, or $1.7 billion...

 

By publicly starting at $26, then a rich 52% premium, EA must have figured Take-Two would jump at the offer. Zelnick Media was, after all, brought on in 2007 to turn around the faltering Take-Two. Instead, Zelnick stonewalled. "EA didn't know how to react," says Pachter.

Meanwhile, analyst Colin Sebastian told the San Francisco Chronicle:

I think it's more than likely the deal gets hammered out. Maybe it happens at a slightly higher price, but it's good for shareholders.

Should Electronic Arts be successful in its bid to acquire a controlling interest in Grand Theft Auto publisher Take Two Interactive, the merging of the companies could face harsh government scrutiny, reports Newsweek's N'Gai Croal.

Croal serves up a guest post from one of his readers, Justin Blankenship, who formerly worked for the Federal Trade Commission. While with the FTC, Blankenship's assignment was to review potential technology and entertainment mergers for anti-trust violations. Of the EA-T2 situation, Blankenship writes:
 

Although EA's offer may eventually prove too lucrative for Take-Two to pass up, I wouldn't assume that this deal will get a rubber stamp from government antitrust regulators. I'm specifically referring to comments by Wedbush's Michael Pachter, who stated:

"Currently [EA and Take-Two] compete in pro basketball, college basketball and hockey. So by taking out all of that, EA has a monopoly in sports. If these guys have a monopoly, they're not going to cut pricing on sports games as quickly. We've been seeing sports games come down [in price] before Christmas the last couple of years. That'll never happen again."

GP: Blankenship is referring to comments Pachter made to GamePolitics in a report from February 25th. See: Pachter: Sports Drives T2 Deal for EA; GTA is "Gravy". Blankenship explains:

It looks as if this fight could get ugly... 

GamePolitics has just received a press release from Take Two Interactive in response to Electronic Arts' hostile takeover bid.

In the release, the Take Two board confirms EA's offer and pronounces it "inadequate in multiple respects and not in the best interests of Take-Two’s stockholders." From the release:
 

After careful evaluation, the Board has determined that EA's proposal substantially undervalues Take-Two’s robust and enviable stable of game franchises, exceptional creative talent and strong consumer loyalty. 

We believe EA's unsolicited offer is highly opportunistic and is attempting to take advantage of our upcoming release of Grand Theft Auto IV, one of the most valuable and durable franchises in the industry.

Take Two Executive Chairman Strauss Zelnick is quoted:
 

Electronic Arts’ proposal provides insufficient value to our shareholders and comes at absolutely the wrong time... Thanks to the extraordinary efforts of our creative and business teams, Take-Two has made enormous strides in the past 10 months toward our common goal of being the most creative, innovative and efficient company in our industry...

Given the great importance of the Grand Theft Auto IV launch to the value of Take-Two, the Board has determined that the only prudent and responsible course for our Company and its stockholders is to defer these discussions until immediately after Grand Theft Auto IV is released. 

Therefore, we offered to initiate discussions with EA on April 30th, 2008 (the day after Grand Theft Auto IV is scheduled to release).  We believe this offer demonstrated our commitment to pursuing all avenues to maximize stockholder value, while we believe that EA’s refusal to entertain this path is evidence of their desire to acquire Take-Two at a significant discount, whereas we believe this value rightly belongs to our stockholders.

Take Two also sent GamePolitics the text of a series of letters between Zelnick and EA CEO John Riccitiello: