Electronic Arts launches hostile bid for Take-Two; O'Charley's accepts Crescendo's board nominees

By Paul A. Harris

St. Louis, March 13 - Electronic Arts Inc. launched a $26.00 per share hostile takeover bid for Take-Two Interactive Software, Inc. on Thursday.

The offer is valued at approximately $2 billion.

Take-Two (Nasdaq: TTWO) shares closed the session at $25.64, up $0.73, or 2.93%.

Electronic Arts' $26 per share cash offer matches the one it made in late February, at which time the Take-Two board turned it down, taking the position that acquisition talk should await the launch of Take-Two's flagship video game, Grand Theft Auto IV, expected on April 29.

However Electronic Arts, invoking the 2008 holiday season among other factors, asserted that the deal should not wait.

In a Thursday report, analyst Jeffrey S. Thomison, vice president of Investment Research, stated that chances are good that a majority of Take-Two's shares will be tendered.

"Although the focal point of Electronic Arts' interest in Take-Two is likely the lucrative [Grand Theft Auto] franchise and other projects from Rockstar Games, there is some meaningful impact on the sports video game business. Electronic Arts is the industry's overall dominant publisher of sports games yet Take-Two's 2K Sports publishing label is a respectable number two participant in the genre.

"We feel that Electronic Arts' proposed acquisition of Take-Two would significantly enhance its sports video game business by virtue of addition (inclusion of some good 2K Sports games in the portfolio) as well as subtraction (removal of a competitor).

"Finally, we believe the $2 billion all-cash offer by Electronic Arts is easily affordable for the industry leader."

He continued: "This strong financial condition, coupled with Electronic Arts' interest in Take-Two, could make a slightly higher offer from Electronic Arts a possibility should the tender offer not reach majority status, in our view."

The Investment Research report adds that based on the recent surge in the Take-Two share price, "we recommend taking profits in Take-Two.

"The original acquisition proposal from Electronic Arts sent Take-Two shares up 55% on February 25 to roughly a 21/2-year high. Although the earnings outlook for fiscal 2008 - headed by the highly anticipated Grand Theft Auto IV in April - appears encouraging, we believe the current price warrants some profit taking. Risks to selling Take-Two now include a potentially higher offer from Electronic Arts, although we are not predicting that to occur. If Electronic Arts' tender offer is rescinded and their interest in Take-Two wanes, Take-Two shares are susceptible to a considerable price drop, in our view."

Meanwhile on Thursday shares of Electronic Arts (Nasdaq: ERTS) were essentially flat, closing up $0.03, or 0.06%, at $47.26.

Casual dining

Also Thursday, casual dining restaurant company O'Charley's Inc. (Nasdaq: CHUX) announced that it has agreed to take onto its board three directors nominated by Crescendo Partners, which holds an approximately 12% stake in O'Charley's.

O'Charley's expanded its board to 11 directors from nine and appointed to the board Arnaud Ajdler, a managing director of Crescendo Partners, Gregory Monahan, a senior vice president of Crescendo Partners, and Douglas Benham, the former president and chief executive officer of Arby's Restaurant Group. Concurrently, John E. Stokely, a director of O'Charley's since 2004, voluntarily elected to resign from the board.

On Thursday O'Charley's shares (Nasdaq: CHUX) gained 4.08%, or $0.46, to close at $11.74.

An analyst who covers the sector told Prospect News that the Nashville restaurant company's shares had recently been trading at historic lows, prices not seen since the early 1990s.

"I view this as a positive," said the analyst who added that Crescendo, the largest shareholder, is trying to create more shareholder value.

However, the analyst warned, given the impact that the slumping U.S. economy is having on the casual dining sector, the new board has a formidable hill to climb.

"I don't think anyone wants to place any bets on casual dining right now because realistically the customer base has dried up," the analyst said.

"So whether or not activist shareholders gain board seats, operational numbers are going to continue to be difficult.

"The entire sector is off with the economy."

Elsewhere in the casual dining sector, shares of Ruby Tuesday, Inc. (NYSE: RT) gained 3.53% to close at $6.75, up $0.23.

Meanwhile shares of Brinker International, Inc. (NYSE: EAT), owner of Chili's Grill & Bar, gained $0.07, or 0.41%, to close at $17.18.

And shares of IHOP Corp. (NYSE: IHP), owner of Applebee's International, Inc., lost $0.99, or 2.08%, to close at $46.51.

Great Plains rebounds from low

Elsewhere shares of Kansas City, Mo.-based utility Great Plains Energy Inc. (NYSE: GXP) rallied back after hitting a 52-week low on Thursday morning, according to an analyst in the utilities space.

Great Plains Energy shares closed unchanged at $24.65, after having slumped as low as $24.24 in early Thursday trading.

A special situations equities analyst said that on Wednesday evening, Steven Dottheim, chief deputy general counsel of the Missouri Public Service Commission staff, requested that the commission issue an order directing Kansas City Power & Light (KCP&L) and Great Plains to produce all correspondence with rating agencies by Great Plains Energy's chief financial officer and executive vice president, and Michael Cline, the company's treasurer and chief risk officer, as well as the spreadsheet Cline used in his testimony before the commission.

Meanwhile, according to the special situations source, the two companies made a motion that the commission quash eight subpoenas served to KCP&L employees on Tuesday.

Missouri Public Service Commission chief judge and secretary, Colleen Dale, ordered that any responses to that motion for are due at noon (1 p.m. ET) on March 17.

If the commission approves the deal, Aquila Inc. and Great Plains Energy will combine. Simultaneously Aquila will sell utility assets in four different states to Black Hills Corp.

Shares of Black Hills (NYSE: BKH) were up $0.25, or 0.69%, to close at $36.46 on Thursday.

Aquila (NYSE: ILA) shares, meanwhile, fell by one cent, or 0.29%, to close at $3.42.

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