Double Take at Take-Two

It seems that Electronic Arts (Nasdaq: ERTS) isn't alone in vying for Take-Two Interactive's (Nasdaq: TTWO) hand.

You have to dig all the way to Page 30 of last night's SEC filing covering the upcoming Take-Two annual shareholder meeting to get this little nugget:

"From time to time the Company receives, and since the issuance of the press release by EA the Company has received, informal indications of interest in a business combination. However, the Company has not received any written 'Offers' (as defined in the Management Agreement) and has not engaged in any substantive discussions with any party (including EA) with respect to a business combination since the execution of the Second Amendment."

In a nutshell, even though Take-Two gets inquisitive nibbles all of the time, those queries haven't stopped now that Take-Two has rebuffed EA's buyout advances at both the $25 and $26 price points. That suggests there may be an interested third party willing to get into the bidding game.

It's important to note that Take-Two's received no actual written offer from any third party. Nor has Take-Two indicated that it's seeking a suitor. The company believes its late April release of Grand Theft Auto IV will create serious organic gains without a premium-priced exit strategy.

However, EA now knows that it's unlikely to get away with $1 increments. That's especially true if the other nibblers include companies like Viacom (Nasdaq: VIA), a rumored suitor even before EA made its presence official, and Activision (Nasdaq: ATVI), a threat to EA's market dominance after it completes its merger with Blizzard. Even a cash-rich Microsoft (Nasdaq: MSFT) should be tossed into the hat, with the alluring notion of propping up Xbox 360 sales by making Take-Two's games exclusive to the system.

Obviously, EA can bid higher. With its own shares priced at 26 times next year's earnings estimate, its last bid for Take-Two values the company behind BioShock and Grand Theft Auto at less than 18 times next year's profit target. EA could bid nearly $40 a share for Take-Two, and the deal would still be accretive before recognizing any realized post-merger synergies.

If EA really wants Take-Two, it had better bid both quickly and aggressively. The last thing the company needs is a crowded bidding floor, or the buildup of Grand Theft Auto IV hype in two months.  

David Gardner has recommended Take-Two Interactive -- twice -- to Rule Breakers subscribers. He was fashionably early to the party, getting readers in on Take-Two in the teens. The way things are going, this party is apparently just beginning.

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