Not that you should believe everything you believe, but www.gamesindustry.biz just posted an article full of quotes by Jeff Brown from EA.

I know Jeff, he’s a good guy and a master at public communication. He also makes some very clear comments (if he was quoted properly) about EA’s mindset about Take Two.

“Take-Two is just not a strategic priority for EA.”

“We think [Take Two's studios are] really great teams, that they’re creative people, and we would very much like to give them a home and access to our publishing capability, but we just don’t need it.”

Sounds like EA is moving on to “other opportunities”, especially with his comment about all the new IP in development.

Still, developing new successful IP is much harder than simply buying currently successful IP.

Also, there’s still the question of how EA is going to quickly grow revenues another billion or two billion dollars. (Maxis & Spore to the rescue?)

If the Take Two deal does fall through, there should be some interesting acquisition news in the next month or two.

Everyone knows that EA always has multiple irons in the fire right?

With the release of GTA4, I looked at the EA bid for Take Two again.

It’s still a numbers game.

Literally.

EA needs to grow. It’s stock has been stalled for the past few years (forget for a minute that company execs have heavy stock option components to their compensation).

EA wants to acquire Take Two’s revenue (about $1bn) and have that revenue show up in EA finanicals.

Since EA has a Forward P/E of approx 30 while Take Two’s is approx 16, EA wins big time with an extra 900mm to 1bn in revenue run through it’s financial ratios.

Is Take Two worth 2 billion? Sure, more too, esp given EA’s ratios.

If EA can capture the 1 billion in revenue this year and get the huge upswing in it’s stock price, I think it’s worth more than 2 billion.

Even if Take Two’s revenues drop in 1/2 after this year, EA will be paid back in 3 years rather than 2.

The other hidden factors to consider. First are the gains from acquiring the IP from Take Two.

EA does amazingly well at exploiting IP it acquires – at least for the first few years – so there is more revenue to be had, even when sales of GTA4 drop off.

Second is the shift in sports games landscape once EA Sports and 2k Sports are brought together under one roof.

$2bn is looking like a bargin for EA.

I think Take Two knows it.

If EA doesn’t get the additional $1bn in revenue from acquiring Take Two…one wonders where it will come from…

Activision is too big now…..anyone else thinking “THQ”?

The financial analysis of the combination of EA and Take-Two is the easy part to figure out on whether it makes a good idea for these two companies to join.

The trickier part is the current debate about the key talent from Take-Two and will they continue to work for EA after the deal is done.

The answer to this is actually quite simple.

EA has the resources to make it very compelling for this talent to stay for the term of an employment contact that comes with the acquisition. Whether the term of the contract is 2, 3 or 4 years, these post acquisition contracts really cover the time it takes to develop only 1 or at most 2 more games.

History shows this to be true with every major acquisition they’ve made over the years (exceptions are the situations which called for the immediate relocation of all staff to another state, country or painful commuting distance away).

The fact that the major talent stays after the acquisition makes for compelling headlines and a short term win. Good for the stock price too. Good for the public relations stories where every game company wants to be seen as “talent friendly”.

When you look at the statistics for which talent stays after the end of their initial employment contract, the story is less compelling. Unfortunately, history shows a trail of broken and shut down studios, including the departure of major talent from each. This kind of information is rarely examined in detail with each new acquisition. Beyond being hard to quantify, it’s old news.

Sometimes the talent departed because the “lottery win” of being acquired by EA gave them financial freedom to seek other opportunities or “spend more time with their family”.

Other times, the departures came as a result of great talent getting fed up with “one size fits all” development processes and stock price driven mandates that come with working for a large public company or because the new “big company” culture and the resident politicos fighting turf wars all combine to actually destroy the very elements of the studio, talent and product which made them a target of acquisition in the first place.

So the real question is “Can EA retain the top talent beyond the term of the initial employment contract?”.

The answer to that question? I don’t think it matters.

Whether the top talent stays beyond one more game only matters if the costs of the deal and the justifications for doing it rely on benefits that must happen over 2, 3 or 4 years.

EA is smart enough to know this and structure their deal accordingly. Because so many variables regarding top talent are beyond their control, I would even go so far as to estimate that EA probably wouldn’t make the deal if they had to rely on the top talent staying past the initial employment contract.

So, oddly enough, the question of whether the top talent stays is moot.

If EA wants them, they’ll give them a deal (money, creative freedom, undocumented promises, etc) that simply can’t be matched by anyone else and the top talent will stay, at least for a while.

If EA doesn’t want them or doesn’t really care about them, they’ll be gone because other companies will woo them.

That’s the benefit EA has due to it’s size and financial assets.

So, let’s just get on with being clear whether the acquisition is in the best financial interests of EA’s and Take-Two’s shareholders and do the deal.

BTW – Does anyone out there think EA did their homework on all the scenarios on how this will play out? I would guess they pretty much already knew which talent would come on board before they made the offer and barring any “crazy out of the blue” offers by others, had a great idea on what they would need to acquire Take-Two.