EA Just Doesn't Get It

Electronic Arts (Nasdaq: ERTS) isn't stupid, but it's certainly acting that way.

Extending the deadline for its tender offer by a week, the company has revised its $26-per-share unsolicited bid for Take-Two Interactive (Nasdaq: TTWO). It's also tying the proposed purchase to the condition that Take-Two kill its poison-pill provision.

You can't play good hardball against someone wielding a big mitt. Take-Two is on the rise, and EA isn't doing itself any favors if it really wants to acquire the company.

That bears repeating, because I'm starting to think that EA has no intention of actually buying the company. It just wants to distract Take-Two, when it should be focusing on next month's release of the highly anticipated Grand Theft Auto IV.

I'm sure EA wouldn't mind owning Take-Two, which has sequel-spewing franchises in Grand Theft Auto, BioShock, Bully, Manhunt, and Carnival Games. Take-Two also has a modest yet spunky line of sports games that would fit right into the EA Sports powerhouse brand.

However, EA knows that it can't succeed, especially at the price it's offering.

"We continue to believe that our $26.00 per share offer is full and fair," EA exec Owen Mahoney stated in this morning's press release.

I'd tell you what the offer might be full of, but then someone would have to slap an "M" rating on this article. The only thing I'm sure about is that the offer is most definitely not fair. Let's see where some of the forward price-to-earnings multiples in the industry stand.

Company	Forward P/E
Electronic Arts	27
Activision (Nasdaq: ATVI)	23
THQ (Nasdaq: THQI)	18

Source: Yahoo! Finance.

EA's offer values Take-Two at a mere 17 times this year's analyst target. Wall Street isn't guessing in the dark here: Take-Two actually raised its guidance recently to justify the market's expectations. The company blew past analyst projections in its latest quarter, too. This is most certainly a company on the rise -- yet EA expects Take-Two to be snapped up at a discount to the industry?

Keep in mind that Yahoo! (Nasdaq: YHOO) rebuffed an offer from Microsoft (Nasdaq: MSFT) that values Yahoo! at roughly three times its industry's multiple, and Yahoo! is a fading company whose profit prospects keep getting revised lower on Wall Street.

So is there any other explanation for EA's insistence for playing hardball -- and lowball -- in a game it just can't win? If it's not trying to distract Take-Two, it's really just fooling itself.