Wednesday, February 06, 2008

RUMOUR MILL: Viacom looking at Take Two Interactive (NASDAQ:TTWO)?

I'm hearing some Street chatter saying Viacom's Sumner Redstone has expressed interest in acquiring Take Two Interactive (NASDAQ:TTWO).

As always, I have to remind you all that market rumors must be taken with a fair dose of skepticism. Most of them never add up to anything. Out of the about 10 rumours I hear daily, 1 or 2 (at best) intrigue me enough to stop and pay attention. I'm not even going to guess how many actually come to fruition. Should be a low figure.

The Take Two (TTWO) rumor caught my attention for several reasons:

- Firstly, it's likely to co is up for sale. A group of shareholders representing close to 50% of outstanding common sacked the management in 2007 and retained ZelnickMedia to manage Take Two pursuant to a management agreement.

Considering the holders include OppenheimerFunds, SAC Capital Management & Tudor Investment, I'd guess that at least some of them are bored waiting for the stock to recover and are willing to sell, provided a good price.

- Secondly, while TTWO has been plagued by several delays (namely, GTA 4 & Manhunt 2), there is some light at the end of the tunnel. It was only couple of weeks ago when TTWO announced a firm launch date for GTA, their largest revenue contributor.

- Thirdly, Viacom wants a piece of the game publishing pie. They have been buying some gaming assets over the past couple of years and recently struck an interesting deal with Microsoft that included a gaming component. Not to mention Redstone's personal investment in Midway Games (MWY).

The thing is a media conglomerate just can't go and buy any game publisher it fancies. The problem is the acquired firm could lose revenue from licensed games that are based on properties from rival media companies. Many such licensing arrangements have provisions that allow the property's owner to take the license elsewhere if the publisher gets sold to a competitor.

Take Two (TTWO) does not have that problem. Most of its games are developed internally. That's why its operating expenses have always been higher than industry average.

So, in that sense it would be a perfect fit for Viacom.

The price?

Who knows, TTWO is currently trading at a hefty discount to other large publishers. Think it goes without saying current large holders know how to bargain.

One to watch I think,


Btw: I'm showing a close to 40% short interest in TTWO. With buyout rumors starting to swirl, I suspect at least some of the shorts will start feeling uncomfortable.

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