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Pachter: 'Take-Two's Board Has Made A Mistake'
Pachter: 'Take-Two's Board Has Made A Mistake'
March 26, 2008 | By Brandon Boyer

March 26, 2008 | By Brandon Boyer
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Following the Take-Two board's official rejection of EA's buyout offer, Wedbush Morgan's Michael Pachter has called the move a mistake, firmly stating the publisher has "virtually no chance of finding a better offer."

"We're frankly surprised by Take-Two's rejection of EA's offer," said Pachter, noting that shares of the publisher were trading at $17 immediately before the offer, and that shares of the company have not reached near EA's asking price of $26 since new management took over, and that the company "has consistently lost money for the last two years."

"We think that the Board has virtually no chance of finding a better offer," he said, and that "this deal... makes more sense for EA than for any other company, primarily because of the synergies from consolidation of the two companies' sports businesses. No other company is in the position to realize those synergies, which we believe are substantial."

"We agree that EA is being opportunistic," Pachter admits, "and completely accept as true that EA's offer was predicated on acquiring Take-Two before the shipment of Grand Theft Auto IV. To the extent that EA is forced to wait until after the game ships, we believe that EA will perceive Take-Two to be less valuable, and believe that its offer will be lowered, if made at all."

"In our view, Take-Two's Board has made a mistake," he says. "We believe that the company was positioned to extract a higher offer from EA by offering a friendly transaction, and its Board chose to continue its adversarial posture." While he says that EA's offer was not necessarily a "friendly" one, it only turned hostile after its first two friendly offers were rejected.

Pachter also says that "Take-Two's position that the company will have greater value after the release of Grand Theft Auto IV is naive at best, and disingenuous at worst," calling it "inconceivable" that reviews or first-week sales of the game will "impact the company's valuation in any meaningful way."

"Had they offered an olive branch," he concludes, "we think that EA may have increased its offer by $1 or more. Instead, the Board chose to reject EA's offer. Once the tender expires, we expect that EA will receive tenders of more than 50% of Take-Two shares, mooting today's recommendation. If the company does not receive majority control through a tender, we expect it to withdraw its offer, and we expect Take-Two shares to decline by 20% or so. This presumes that the market will expect EA to come back at a later date, which is not assured."


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