Pachter: EA Bid 'More Than Adequate'

Following EA's bid for rival publisher Take-Two, Wedbush Morgan's Michael Pachter has called the rejected offer "more than adequate" and said EA Sports would benefit almost immediately, but expresses concern that the GTA franchise could go the way of EA's Medal of Honor should Rockstar pull out of the new organization. Admitting that Take-Two has both great franchise potential and a body of creative talent "as good as any in the industry," Pachter notes that the publisher "has failed to make a profit for over two years, and although its turnaround efforts are sincere, they have as yet to yield significant results." Pachter also says he believes "EA's offer is significantly higher than the amount that would be paid by a major media company, and think that the company is uniquely positioned to derive synergies from a combination with Take-Two." Also admitting that "it is important to acknowledge that we did not see this deal coming," thinking instead that EA would prefer to ratchet up competition in the sports genre, an acquisition would lead to an immediate $300 million growth in its traditionally declining sports label, $200 million from Take-Two sales, and $100 million in the higher pricing less competition would bring and "more streamlined marketing." Beyond sports, Pachter says the value of Take-Two's other assets is "considerable," with Civilization, Bioshock, Midnight Club, Max Payne and Grand Theft Auto all under EA's belt, the Civ and BioShock franchises alone bringing in a combined $60-80 million in annual sales. While the deal thus far made no special clauses for Rockstar and its GTA franchise, Pachter says he believes an EA negotiation with the studio would happen outside the Take-Two buyout, "as it will likely entail either a significant increase in the compensation paid to the Housers and to Rockstar North, or will entail a separation agreement." He expresses concern, though, that the name and IP could "go the way of Medal of Honor, which declined in popularity when its original developers left EA to start up the Call of Duty franchise at Activision," should Rockstar not wish to remain part of EA. In the end, though he expects the deal to play out over a matter of weeks, Pachter says "ultimately, we think that Take-Two shareholders will embrace a deal, as virtually all of them will profit immensely and immediately."