When big financial news is breaking in the gaming industry, I look to Wedbush Morgan Securities analyst Michael Pachter to break things down. I caught him on the phone today while he was having brunch at a yacht club (the same yacht club he was last brunching at when the Activision Blizzard deal was announced).
Who is this EA-Take Two deal good for? What would happen with sports and the cost of sports games? And why does he think Rockstar won’t necessarily be a part of the deal?
Pachter broke it down for me…
Multiplayer: Is this a good deal for EA? Good for Take-Two?
Michael Pachter: Probably yes and yes.
The EA side is a little more complicated… Take-Two is a company that hasn’t made money in a couple of years. It doesn’t have a lot of cash and I think it was a stretch to earn the money they earned this year… They [ultimately] earned about a dollar a share this year. EA is offering them 26 times that. It would take a lot of time to turn that around. They make a lot of money when they make ‘Grand Theft Auto‘ and they don’t when they don’t make ‘GTA.’ Their delusion that they will compete in sports — and the reason I say delusion is because EA’s done everything they can to put the squeeze on them — ultimately I think Take-Two would have to get out of that business. ‘GTA’ is a great asset. ‘Civilization‘ is a great asset. The Irrational guys, ‘Midnight Club.’ And the rest of the guys, who knows…
Multiplayer: So what about sports? How would getting that part of Take-Two help EA?
Pachter: EA looks at this business and says, ‘We could make two basketball games, two hockey games, two baseball games… [but] we’re just going to make one of each. … We have a better marketing machine so maybe we can do $300 million instead of $200 million.’ I think that’s rational …
Take-Two does $200 million in sales. EA does a billion-plus. If you combine them together EA sales will go up more than that combined number because they won’t cut price — you won’t see basketball games come down [in price] before Christmas ever again.
Multiplayer: How do you see it playing out? Is it inevitable that EA will buy Take-Two? Or can Take-Two effectively block them?
Pachter: EA started talking to them a long time ago, a year ago, they told me today. EA and Take-Two had a discussion about the acquisition in December. EA made an offer on February 6. [A second offer was made on February 19.] There won’t be another offer because there’s no other video game company that gets the sports position. There’s no media company that will see sports as possible.
Multiplayer: So is there any way for Take-Two to stop EA from getting their way?
Pachter: I don’t really think so, unless Take-Two shareholders think the stock is worth $40. But nobody is going to offer to buy it at $40.
Multiplayer: What role do you see Rockstar playing in this?
Pachter: ‘GTA’ is clearly a wonderful asset, worth a ton. The problem is that to make ‘GTA’ the way it has in the past you need to engage the Rockstar North guys. They’re not going to want the same deal as what they have now.
Multiplayer: So is Rockstar a dealbreaker?
Pachter: It’s not a dealbreaker. EA would love to hire them. But it’s a separate negotiation. I think the ‘Civilization’ — Firaxis guys — will work with [EA].
Multiplayer: Can you explain what it means that EA would be going public like this? Is that a sign of strength or desperation or something else?
Pachter: It’s quite similar with what Microsoft did with Yahoo… You go public when you want the court of public opinion to make a decision. I think EA is saying, ‘$25 was a fair offer. We’ll go to $26 but we’re not going any higher.’ I think the vast majority of Take-Two shareholders will jump at this. I don’t see a white knight. I don’t think Take-Two will be able to do anything to block this.
Multiplayer: Thanks for taking time out of brunch to talk to me today. Enjoy the rest of your Bloody Mary.
Pachter: I’m eating celery now…
Multiplayer: Cool. Well let me know the next time you’re having brunch at that yacht club. I’ll clear my schedule to do some work.
February 24th, 2008 at 8:50 pm
This is coming from some guy who tends to get just about everything wrong! R* has already said Hell to the No! Besides everything EA touches it ruins, and if they are trying to monopolyze everything then I say R.I.P to console gaming. It’s not secret that EA’s games are amongst the most horrible games in terms of quailty, not to mention storylines as well, with their subpar graphics………Hopefully Pachter is wrong as usual.
February 25th, 2008 at 12:38 am
He had a price target of friggin $12 for TTWO and he’s the first people you guys call up? This guy is the biggest joke in the industry
February 25th, 2008 at 3:29 am
It would be a sad day in gaming history if EA buys T2 out.
what would gta v would look like? a sims game?
February 25th, 2008 at 3:48 am
Wow Gary & Sjoeter hyperbole much, of course EA would do nothing to change GTA they want to make money from it they are not stupid give them a little credit at least sheesh.
Interesting comments from that analyst anyway I’d agree in that it’s going to happen T2’s only major star is GTA everything else are small fry no matter how much they are loved by gamers T2 is not doing well money wise and shareholders will definitely go for the EA bid.
February 25th, 2008 at 5:31 am
If/when EA buys TTWO all EA has to do is sit back and give them the financial backing to make G.A. one of the best games in the market by not touching a thing. If they play their cards right they have a potentional money tree growing in their back yard.
February 25th, 2008 at 10:04 pm
does patcher still have a job?
He’s never correct about anything.
Patcher can’t predict yesterday’s weather. It’s not even funny. He’s never ever ever ever ever right.
Sorry patcher, you know it to be true. You are a fraud.
February 26th, 2008 at 12:24 am
Concerning the sports games, I actually think it could be a good thing. It depends on if they just dissolve the T2 dev teams, or if they bring them on for EA’s series. They already release a new version every year, this way they could switch between each team every other year and see some actual innovation. It seems to work for Ubisoft on their Tom Clancy games. Of course, the likely thing that will happen is that EA will close most of those studios, or absorb them into their own teams.
February 26th, 2008 at 4:00 am
it would be bad for sports games. specifically the nba2k series. it is a far better game than live.you seen what happened when ea bought exclusive rights to the nfl license. nfl2k surpassed madden in quality, also in sales, if i’m not mistaken in 2005, only to be shut down. madden no longer had to innovate, just update rosters, since it was the only nfl licensed game