Ok, it looks like TTWO won't be accepting ERTS buyout offer of $26 a share.
The board rejected the offer weeks ago, and now it looks like none of the major shareholders want to sell either. See here, here, and here.
I've been waiting for the buyout to be denied for a few weeks now. Analysts are sometimes very, very stupid. I didn't expect that this sale would go through, but apparently many people did. Why would a board of directors sell the company for $2 billion when it's expected to make $400 million+ during the last week of April alone??? (When Grand Theft Auto IV is released).
I guess the price is up because people think EA is going to make a bigger offer. I doubt this happens. I'll probably buy a put at $25ish when EA fails to buy the company, and then buy a lot of shares when TTWO stock dips. Then, the game will come out on the 29th, and with any luck, we'll see $28-$30 within a month. Of course, the stock might not dip much at all, and then, I probably wouldn't get in. But I still might buy a call or two. We'll see how it plays out...
Now, I could be completely wrong about any of this, but that's my take. I might update this post later this evening, but those are my initial thoughts. I made a grand statement saying that EA won't up their bid and that TTWO won't accept, so let's hope that I don't turn out looking like a dummy.
UPDATE:
And of course, here comes Michael Patcher, an analyst at Wedbush Morgan Securities, shooting his mouth off about the buyout. Now, if you don't know who Michael Patcher is, he is the analyst for gaming information. Almost all gaming and technology sites report any opinions that this guy gives. Why he's garnered such a widely known name, I have no idea. I've got mixed feelings about analysts in general. Some are good. Some are bad. Patcher seems to be a typical analyst in that he does two things well: 1) States the obvious beforehand. 2) States the obvious after the fact. Now, let me be clear about this, I have nothing against Patcher or any other analsyts. In fact, Patcher even makes a point or two about gaming stocks that I haven't thought of sometimes, and in that regard, he garners some respect from me. He brings up a good point in a CNBC interview above that I wasn't aware of:
"Fifty or 75 percent of Take-Two shares are in the hands of risk [arbitrators]" who bought heavily following EA's Feb. 25 bid, said Pachter. And only shareholders of record as of Feb. 19 are admitted to the meeting today."
So, the implication is that the "arbitrators" could sell the company. This could turn out to be a situation where the analyst was very, very smart, and I was the dummy. hehe.
However, if I was a shareholder (and strangely enough, I received the TTWO shareholder pack just the other day, too bad I sold my shares one day too early), I would not sell. And here's why:
GTA IV is coming out, and TTWO will make loads of cash. The game is probably going to gross $400 million+ in it's first 10 days on the market. Not only I think this, but analysts (including Patcher) think so as well. Look, Halo 3 cleared $300 million in a week. That figure comes from sales ONLY on the Xbox 360, and even then, the 360 had a smaller install base than it does now. GTA IV is probably more popular than Halo, and it's coming out on the PS3 AND Xbox 360, and even then, there are bigger installed bases of each console was than when Halo 3 launched. Additionally, there's the fact that gamers can buy songs from amazon.com over the in-game stereo/cellphone set up, and all the other crazy marketing stuff that's going to sell with the game. I mean, the $400 million figure doesn't even include Europe, the money to be made off of merchandizing, or the Amazon music sales. GTA games are known for their music and soundtracks, and this one is going to be no different. Here is what Kotaku, a gaming site, (quoted at the previous link) has to say:
"It's hard to predict just how well this service will work out as the Rock Band and GTA4 models are in actuality quite dissimilar. In Rock Band and Guitar Hero, the two marquee music distribution games of the day, the motivation to buy new songs is that one is essentially buying more in-game content that extends the experience. Furthermore, downloaded music is locked to the game. With Grand Theft Auto 4, users will be able to enjoy the tracks both in and outside the game. The lack of DRM will also prove an attractive incentive for digital music fans that are in the know.
This type of distribution is certainly unprecedented. Aside from included soundtrack CDs or vouchers for free downloads, this kind of game-based distribution marks another first for the downloadable music age."
I'm not sure if the game will have in-game advertising or not, but many of the TTWO sports games do, so that could be another revenue stream for GTA IV as well...but like I said, that may not be in the game. I could see the brothers primarily responsible for GTA getting aggravated about in-game advertising, but hey, maybe they let it slide. (goes to google to search for more info...)
And finally, here comes the wildcard, the FTC has not yet approved the merger. In fact, they've asked for more time to review the transaction. In fact, ERTS (commonly known as "EA") issued the following statement:
"While EA believes that its proposed transaction with Take-Two would not be anti-competitive, the FTC has not yet reached any conclusions regarding the proposed acquisition and has indicated that it needs further information and additional time to conduct its review."
Basically, the only company that manages to compete with ERTS in officially licensed sports games is TTWO. If ERTS buys TTWO, then only one company would control a large percentage of sports games. While this might be enough to make the FTC deny the merger, the fact that they are taking more time is probably a little troubling for those wanting a buyout.
Generally, if Patcher is right and the fate of the company is in the hands of the arbitrators, the company may sell. But personally, if I were a stockholder, I'd tell EA to bug off. Let's look at the math:
EA offer= $2 billion.
TTWO profit off of GTA IV = $400 million+ in U.S. sales alone within 7-8 days. + profit streams from merchandising + profit streams from Amazon.com sales + another $300-$400 million from Europe(plus potential in game advertising?)
By that math, the ERTS offer SEVERELY undervalues TTWO. So, the arbitrators could be idiots and sell (if they own a bunch of EA stock as well, they couldn't really lose), but I think that TTWO is a buy right now, and probably so in the future. In fact, I might by some stock tomorrow. In a worst case scenario, I pay $25.change for the stock and EA buys it for $26. Best case scenario, the sales of GTA IV blow the roof of the gaming world, ERTS' bid is shot down, and the stock hits $30 in a few weeks.
Update #2: EA lowers offer to $25.74 due to the issuance of new shares (the "poison pill" TTWO was working on) and extends their deadline again to May 16th.
In my opinion, this is a last ditch effort by EA. As I said above, I disagree with the analysts. Any TTWO stockholder with any sense is going to hold his shares at least until after GTA IV comes out. Then, by May 16th, the $25.74 will likely look ridiculously low because TTWO's financial sheet will look a LOT better. (There's always a chance that the buyout will go through, but I don't think EA is willing to pony up the money it will take to buy TTWO.)
Anyone else have any thoughts? I'm always open to admitting mistakes if someone sees that I made one.
