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.
