EA Waiting at the Altar

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You may now miss the bride.

Electronic Arts (Nasdaq: ERTS) is now in compliance with the Federal Trade Commission regarding its proposed purchase of Take-Two Interactive (Nasdaq: TTWO). EA has agreed not to take possession of the hot video game developer behind Grand Theft Auto IV until Aug. 21, giving the regulatory agency time to fully review the deal, complete its investigation, and probably lend its blessing.

The rub, of course, is that you need a bride to pull off a wedding. For now, at least, Take-Two shareholders aren't ready to walk down the aisle for EA's offer of $25.74 a share.

EA has had to extend its undersubscribed tender offer four times, and the response gets worse with every passing month. Only 6.4 million shares -- or 8% of Take-Two's outstanding shares -- were tendered to EA during its initial offer, which expired back in April. Just 6.2 million shares in total were tendered a month later. Last month, just 6.1 million shares were submitted.

EA is going the wrong way, with more shareholders bolting from EA's offer than caving in. It hasn't helped EA's chances that Take-Two has come through with monster earnings, revised its guidance higher, and shattered industry records with Grand Theft Auto IV.

The company's luck may begin to turn heading into next week's expiration. Take-Two's stock is trading below the $25.74 offer, as market weakness, deal uncertainty, and concerns over life after GTA4 set in. EA is unlikely to win over a majority of Take-Two's shares before next Friday's deadline, even if new investors may be wooed by the easy premium.

This doesn't mean that Take-Two has to settle for EA. Its stock is growing more quickly than shares of rivals like EA, Activision (Nasdaq: ATVI), and THQ (Nasdaq: THQI), yet it trades at a lower earnings multiple based on this year's profit targets.

Take-Two is also exploring new revenue channels. GTA4 has deals for digitally delivered episodes through Microsoft (Nasdaq: MSFT) and MP3 sales through Amazon.com (Nasdaq: AMZN). Last year's sleeper hit, BioShock, is being turned into a theatrical film.

Some fear that Take-Two shares will crumble if EA walks away, but that fear is probably overblown. EA is offering to pay slightly less than 14 times this year's earnings for Take-Two. The market is skeptical about Take-Two's earnings power next year, but EA doesn't seem to think so (or else it would have held back until next year to go after Take-Two).

Things will get interesting come July 18, when EA's latest tender offer expires. Stay close, either as an investor, or just for the sheer entertainment value.

A look back at the tender art of tendering:

• 6.4 million shares in April.
• 6.2 million shares in May.
• 6.1 million shares in June.