In February 2008, Electronic Arts (ERTS) offered to buy Take-Two Interactive (TTWO) for $2 billion, about $19 a share. EA later raised the offer to $26. Take-Two management thought it could do better and EA let the offer expire in August of that year.

The transaction would have made sense for both video game companies. EA's huge distribution system would have Take-Two products like Grand Theft Auto. Combining the two companies would almost certainly have allowed for some expense savings.

Take-Two's management and board made a huge mistake. The company's stock now trades at $10. The firm just announced earnings. Revenue for the third fiscal quarter, which ended on July 31, was $138.6 million, compared to $433.8 million for the same quarter of fiscal 2008. Net loss for the third quarter was $55.5 million or 72 cents per share, compared to net income of $51.8 million or 67 cents per share in the third quarter of fiscal 2008.

It is hard to say why Take-Two rejected the deal. Chairman Strauss Zelnick and CEO Ben Feder have extremely rich pay packages. They wanted to hold onto those, although they would have had good pay-days if the acquisition had gone through. Maybe Take-Two thought it could build its business quickly enough to make the company much more valuable.

Whatever the reason, when Take-Two walked away from the EA deal, the shareholders suffered the consequences.

Douglas A. McIntyre is an editor at 24/7 Wall St. For part of the time that he was CEO of On2 Technologies (ONT), Mr. Zelnick was a board member.