Analyst: Activision, Take-Two Combination 'Makes Sense'

A combination between Call of Duty house Activision and Grand Theft Auto publisher Take-Two would prove beneficial for both companies, according to one analyst. Arvind Bhatia with Stern Agee said in a Friday research note that a combination of the companies "makes sense," and would "be a positive" for both game makers. "Activision will benefit from taking control of several proven intellectual properties at Take Two such as GTA, Red Dead, Max Payne, Bioshock, Mafia, Civilization, Midnight Club and new, upcoming properties such as L.A. Noire and Agent," Bhatia explained. "It would help Activision diversify its portfolio, which has recently become too concentrated following the cancellation of titles such as Guitar Hero, Tony Hawk, True Crime (competitor to GTA) etc." he added. Recent rumblings in the industry indicated that Activision was in acquisition talks with Take-Two, but the extent of those talks is unclear. In 2008, Electronic Arts, led by CEO John Riccitiello, made a $2 billion bid to acquire Take-Two. But Take-Two chairman Strauss Zelnick held out on the offer until EA dropped its bid several months after the initial offering. Bhatia said he would expect a potential Take-Two buyout price of $1.9-$2.4 billion. Activision, which has $3.5 billion in cash and no debt, could pull off an all-cash or predominantly-cash deal, he said. Bhatia also said, "Take-Two will benefit from being part of a large entity with deep pockets -- a must in the next generation cycle when rising development costs will make it more difficult for smaller players to thrive." The jewel in Take-Two's crown from a commercial standpoint is the immensely popular Grand Theft Auto series -- GTA IV has sold over 17 million copies since its release in April 2008. But other Take-Two franchises have seen critical and commercial success, including BioShock, Civilization, NBA 2K11 and Red Dead Redemption. There are potential drawbacks to an acquisition of Take-Two by Activision, the analyst noted. Activision could run into problems negotiating a new contract with key Rockstar North staff including Sam and Dan Houser and Leslie Benzies. Meanwhile, he said if Take-Two management sells the company, they may feel like they're selling too soon. Recently management, which took over the company in 2007, finally reported a profitable year for the publisher without a major GTA release. Bhathia also said that the buyout offer from Activision may be lower than EA's offer back in 2008, and Take-Two management may not bite.