Take-Two, Action!

In a more recent post, I briefly discussed why M&A activity could pick up. Towards the end, I outlined some thoughts without going very in depth. One of those thoughts was regarding Take-Two Interactive, a multimedia/graphics software company that is most known for their Grand Theft Auto and NBA 2K franchises along with many other unique video games. I thought that the company was affordable (I still do) for larger companies such as Microsoft to pick up, especially considering that the Operating Income for Microsoft’s Entertainment and Devices Division grew by roughly 96% this quarter from the same quarter in 2008. Some sources have commented on how Electronic Arts or Activision Blizzard could be potential targets for a Microsoft, yet I feel that those companies have much larger enterprise values relative to Take-Two or THQ thus indicating it is very much possible to see ATVI or ERTS acquire Take-Two or THQ.

On Friday, out of the ordinary, I saw Take-Two Interactive surge 6.56% with an additional 1% or so in after hours trading. What fascinates me most is how there were more than 8 million shares traded, the most within one year (at the end of May and middle of July, about 6 million shares were traded on two separate days) and no new information seemed to have supported that move. This price action for Take-Two is not necessarily prevalent but most certainly unusual. Even if there were rumors of Take-Two putting itself up for sale or someone possibly attempting to acquire the firm, such rumors are still published. This reminds me of what recently happened with a Perot Systems employee who was charged by the SEC for buying more than 9,000 call options between the 4th and 18th of September, right before Dell announced that it was going to buy Perot. With Take-Two currently at $11.86 per share, the volume for the November $12.50 and $15.00 call options this last Friday of October 23 was more than 4,000 and 3,400 contracts, respectively. At the end of the day, I am just trying to understand where such unforeseen movement derives from.

Just last week, the NPD Group, a market research firm that gives information on consumer trends said that video game software sales grew by 5% in September. After six straight months of declines, this was the first positive reading. The sector was not too fond of this data point because analysts were expecting 15% growth but potential still exists. For the same month, video game console sales did very well. Sony PlayStation 3 sales were up 134% from the previous month, Wii sales were up 67% for the same period, and Xbox 360 sales grew by roughly 63.7% again for the same period. Even though these sales stemmed from lower costs, if one buys a system, that person will buy some games. In conclusion, what attracts my attention was this movement in Take-Two. So starting this week, I will continue to follow the sector, just with a closer eye on it and we will see where it takes us.