Take-Two expects a U-turn

Take-Two Interactive Software Inc., the target of an unsolicited $2-billion buyout offer, on Tuesday posted higher losses for its first quarter, but raised its full-year financial outlook because of strong demand for its upcoming “Grand Theft Auto IV” video game.

The New York-based game company lost $38 million, or 52 cents a share, on $240.4 million in sales in the quarter ended Jan. 31. It lost $21.5 million, or 30 cents, on revenue of $277.3 million a year earlier. Analysts polled by Thomson Financial had predicted revenue of $211.7 million and a loss of $37 million.

The company, however, said it expected sales of $1.2 billion to $1.4 billion for the fiscal year, up from $982 million last year, driven primarily by a high volume of pre-orders for “GTA IV” from consumers who paid to reserve a copy of the game when it is released, set for April 29. The 10-year-old franchise has sold 66 million copies, generating more than $3 billion in sales.

Take-Two’s shares, which closed Tuesday at $24.65, down 20 cents, rebounded 35 cents to $25 in late trading after the upbeat sales forecast was released. The stock price is below the $26 a share offered last month by rival video game publisher Electronic Arts Inc. Take-Two’s board dismissed the offer as “inadequate.”

Prior to EA’s announcement of the unsolicited offer on Feb. 24, Take-Two’s stock had traded around $17. It zoomed past $26 in the days after the announcement as investors bet that either EA would increase its bid or other interested buyers might trigger a bidding war. Neither happened.

Take-Two’s two largest shareholders -- FMR’s Fidelity Funds and Oppenheimer Funds Inc. -- on Monday told regulators that they had shed significant holdings in the company. FMR slashed its stake in Take-Two to 2.75% last month, from 14.7%, while Oppenheimer cut its stake in half to 11.6%.

The sell-off indicates that shareholders believe Take-Two is unlikely to get a better offer, said Michael Pachter, an analyst with Wedbush Morgan Securities. “They’re dropping like flies,” he said.

Strauss Zelnick, who became chairman after wresting control of Take-Two in a boardroom coup a year ago, reiterated in a call with analysts Tuesday that EA’s offer “failed to value fully Take-Two’s portfolio.” Last month, days after quietly rejecting EA’s bid, Take-Two’s board extended its contract with Zelnick’s management firm, ZelnickMedia, and tripled the fee it paid the firm to $2.5 million a year.

“Their moves in the wake of EA’s offer certainly have raised some eyebrows,” said John Taylor, managing director of Arcadia Investments, which owns shares of Take-Two and EA. “A lot of people were under the impression that ZelnickMedia was coming in to clean up Take-Two and find a buyer. Now it looks like they’re settling in for a longer stay.”

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