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EA's Riccitiello: Rockstar 'Key Part' Of Deal
EA's Riccitiello: Rockstar 'Key Part' Of Deal
February 25, 2008 | By Leigh Alexander

February 25, 2008 | By Leigh Alexander
More: Console/PC

Following Take Two's recent rejection of Electronic Arts' acquisition bid, EA CEO John Riccitiello and CFO Warren Jensen held a conference call with investors to stress their ambition to complete the transaction and to answer tough questions from analysts.

"This is a decision we have thought long and hard about," emphasized Riccitiello. "We're very confident it's the right path for EA and Take Two." He added that the $2 billion cash offer, representing $26 per share or a premium of 64 percent, is time-sensitive: "Delay will make this asset less valuable."

The Ticking Clock

Riccitiello later added that the value assigned to the deal is predicated on its quick closing. "The longer this waits, that value will disappear," he warned. "The sooner we can effectuate the synergies, the more value is created."

Riccitiello said that Take-Two's future viability is "not assured," highlighting the latter's dependence on "limited titles." Nonetheless, Riccitiello and Jensen stressed that integrating Take-Two into EA's label structure would allow them to better monetize and support Take Two titles through its global infrastructure.

The Rockstar Factor

It was clear from the tone of the discussion that EA is highly interested in acquiring Take-Two ahead of the launch of GTA IV, as Riccitiello stressed the company had deliberately waited until its development was completed to avoid "screwing with" the game.

In particular, Riccitiello highlighted the acquisition of the Rockstar development stable and the GTA IP as the most obvious benefits. Moreover, he said, "EA is under-represented in M-rated content; this gives us the world's best M-rated content."

When analysts pressed Riccitiello and Jensen to explain how they would handle the highly-valued employment contracts negotiated with Take-Two by Rockstar's developers, Jensen said it was a bit too early to address the issue.

However, Riccitiello stressed, "We have enormous respect for Rockstar and the leadership in Rockstar. this is an organization and leadership team that has survived, I believe, 6 CEO transitions in the last 5 years. Under any circumstances, they've got staying power and they're resilient. Our label structure, in many ways, is inspired by some of the work that has taken place within Rockstar... we see them as the asset, or the key part, of the deal."

Riccitiello also said he doesn't foresee any cultural clash, noting that the different labels and project teams within EA often have completely disparate cultures, suggesting Rockstar might continue to operate as its own culture.

What's Different This Time?

Analysts also asked the EA execs to differentiate between the valuation and acquisition of BioWare/Pandemic and this potential transaction with Take-Two.

"In terms of contrasting the two, it's actually hard to find points where they're really comparable," Riccitiello said, pointing out that BioWare/Pandemic was not a publisher, was a private versus a public company, and already had a business relationship with EA. Additionally, Riccitiello said, Take-Two is a larger business "by some note."

The Future For IPs

If the deal is completed, what would be the fate of Take-Two's IPs? Is there anything they would have done differently, for example, with BioShock, that might affect the publisher's treatment of future titles?

"I wouldn't change a line of code in BioShock," Riccitiello said. "Nor would I in GTA, nor would I in Max Payne. I think that many titles these guys put out are about as good as it gets. What we would do is sell more of it... very cost-efficiently," he added, stressing EA's subsidiaries in Eastern Europe, Latin America, Southern Europe and Asia.

Riccitiello recently told Gamasutra that he saw opportunity, not conflict or redundancy, in integrating Take-Two's sports titles among EA's. But what about antitrust issues? Analysts wanted to know whether EA was concerned about regulators stepping in regarding a possible sports game monopoly.

"EA is no threat to competition in sports-oriented video games," said Jensen, highlighting titles like Tony Hawk, Wii Sports, Hot Shots Golf and others. "If you look at our sports games, and, in part, our simulation games, which are the bulk of our sports properties, we do not control the content. That's controlled by the leagues."

View From The Second Tier

Having caught Riccitiello referring to Take-Two's business model as "sub-scale," another analyst asked the executives about how the market might play out for these so-called "second-tier" publishers.

"There's a long history of companies in position 4, 5, 6, 7," Riccitiello replied. "This includes Infogrames, Midway, Acclaim, Giant Interactive... companies that have strong cash flow positive experience every couple of years and lean times in between have had a very hard time surviving in this business and making the investment in infrastructure that EA's been able to make. They'll be acquired by somebody."

Other Options?

Given that Take-Two has recently rejected the takeover offer, at what price might Take-Two accept? "They did not give us an indication of price," Riccitiello explained. "We were very surprised, given how fulsome the offer is. It's a premium they won't see at any time in the near future... they did not give us an answer. We hope they will shortly."

Riccitiello also said he expects that, if EA can't acquire Take-Two, nobody else can. "EA is unique in being the best acquirer of this asset," he said. "We have the strongest infrastructure... the strongest management. A lot of people have speculated that a media company might come in... This is a company where, unless I hear anything to the contrary, it would be my belief that the Zelnick media crew wouldn't go with the transaction... They'd find themselves in a tough situation. We're the most likely acquirer. Our label structure is unique, and this makes us the best possible home for their studios."

So if EA fails to acquire Take-Two, are there any runners-up the company might go after? "Our focus right now is on Take-Two," Riccitiello stressed. "It's not focused anywhere else. This is what we'd like to get done."

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Mickey Mullasan
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I'm guessing this is not going to go over well. What we have here is what is called a "hostile takeover". A very popular form of sport in the eighties. Will Take Two take a poison pill? (

What I'd like to know is where is EA getting the money for these acquisitions. It must be borrowing it from someone, especially since it's cash. Journalists?

Dan Robinson
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EA has cash to burn apparently. If anything this public display of "affection" is probably an attempt to get Take Two shareholders to force the board to take the deal. I don't see the need for the time limit by EA except for putting a scare into the stockholders.

Tom Newman
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Bad for the industry. EA may be looking for more M games, but when controversy strikes will they go to bat for Rockstar? In an age where we are fighting for games to be judged on the same criteria as movies and books, I don't think EA will carry that torch.

Sal Wayne
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I wonder what has changed at EA since their acquisition of Virgin Interactive and cancelled "Thrill Kill." In that instance, they never even let the game go public.

I hate to use the "M" word, but if EA is even hinting at buying up Midway and some of the smaller companies, I think there has to be a case made that the Feds needs to investigate this, especially considering EA's stake in UBISoft.