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Wedbush: T2 could be readying a social/mobile acquisition

Pachter believes $200m raised from convertible senior notes might fund a purchase

Publisher Take-Two has issued $200 million worth of senior convertible notes for purchase, a move which Wedbush analyst Michael Pachter believes could be used to raise funds for the acquisition of an other studio or company.

The notes, priced at $14.61 each by Take-Two and valued by Pachter at an estimated $19 each, will mature on June 1, 2016, with the publisher's accompanying statement indicating that the proceeds are for "general corporate purposes, which may include acquisitions and other strategic investments."

Pachter observes that, as the company has a cash fund of $270 million, with a debt of $111 million due in 2016, the publisher does not need to raise operating capital. Add to that the expectation of two profitable coming quarters, and the recent announcement of GTA V and a picture emerges which could denote a sizeable outlay in the near future.

"We cannot envision any scenario where the company would run out of cash at any time in 2012," reads Pachter's investment advice, "particularly taking into consideration that management has repeatedly stated it expects the company to earn 'in excess of $2.00 per share' in FY:13.

"A review of Take-Two's line-up in 2012 reinforces our view that the company will generate even more cash in FY:13, and leads us to conclude that the proceeds can only be intended for acquisitions or strategic investments."

The announcement, Wedbush claim, should not affect the release date of GTA V, which the analysts are predicting to be "as early as May / June 2012, although we currently have modelled a September quarter release to be conservative."

Given the nature of the industry market, and the current direction of growth, Pachter sees Take-Two expanding its business to new areas, probably into the currently burgeoning casual and smartphone markets.

"Take-Two is likely exploring an investment in the mobile or social games space," the investment note claims.

"We note that digitally delivered content accounted for 25 per cent of net revenue in Q2:12, and management consistently lists digital as a component of the company's growth strategy."

Wedbush rates the offering as "outperform", indicating that the firm sees the investment as likely to offer significant returns.

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Dan Pearson

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