SEC Investor - Thursday, March 13, 2008 - The Insider's Guide to SEC Filings

Thursday, March 13, 2008

Take-Two Interactive (NDAQ: TTWO) may have to do a double-take after Electronic Arts (NDAQ: ERTS) launched a hostile $2 billion tender offer directly to its shareholders. The $26 per share offer is four percent higher than TTWO’s closing price yesterday and a 64 percent premium to the pre-takeover price. Electronic Arts says the bid will expire at midnight on April 11th - the day after Take-Two’s annual shareholders’ meeting. So, is this a deal worth taking for TTWO shareholders?

Take-Two’s real value lies in its Grand Theft Auto video game series that has sold more than 65 million copies, making it one of the most valuable franchises in videogame history. The company is expected to release the next version of the blockbuster series on April 30th and has insisted that it will talk to EA afterwards. Take-Two believes that EA’s buyout attempt as well as reported interest by others is simply an attempt to buy a franchise on the cheap.

Unsolicited takeover offers like these have become increasingly common as larger companies seek to add valuable brands to their portfolio rather than retain key executive. However, these offers can be difficult as investors tend to hold out for a better offer until the last second while boards negotiate a deal behind the scenes if majority shareholder support is in place. This situation is no different and illustrates the clear value of Take-Two’s franchise game.

Interestingly, Take-Two’s existing board consists of hostile shareholders from a different era. The company’s previous management and board was ousted a year ago by dissident shareholders who installed directors from ZelnickMedia to control the company. It will be interesting to see how shareholders respond to this offer, and more importantly, how the board responds to the offer given their past skepticism in the offer.

Thursday, March 13, 2008 5:32:40 PM UTC

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Was Bebo Really Worth $850 Million? (TWX, NWS, MSFT)

Time Warner’s (NYSE: TWX) AOL may be finally realizing that dial-up internet doesn’t have the brightest future. The popular internet service provider announced today that it purchased social media site Bebo.com for $850 million in an effort to boost its content network. The deal comes after a broad attempt to transform itself from an internet service provider to an advertising-driven content network. So, will this acquisition end up paying off?

Bebo is a social network that caters to the younger demographic with a focus on entertainment - a combination particularly attractive to advertisers. It is also the third largest social networking site, behind MySpace and Facebook by a large margin. However, Bebo is one of the largest social networks in Britain and is ranked number one in Ireland and New Zealand. This international exposure could be just the edge needed to create value.

Social media acquisitions are hard to value for investors. News Corporation’s (NYSE: NWS) purchase of MySpace was a record at the time and ended up paying off- the $580 million purchase is now worth an estimated $15 billion. However, Microsoft Corporation’s (NDAQ: MSFT) $240 million 1.6% stake in Facebook is still seen as overpaying. It turns out the Bebo also shopped itself to other competitors like CBS Corporation (NYSE: CBS), but many thought it was too expensive.

The acquisition fits well into AOL’s new content provider business model. The company has already launched 17 international websites over the last year and has plans to expand to 30 countries by the end of 2008. Bebo is not only the third largest social network in the U.S., but also has international exposure that could synergize well with AOL’s other holdings. Meanwhile, a string of ad-sales companies should enable the company to drive advertising dollars.

In the end, this is good news for Time Warner’s AOL division. It is possible that the company overpaid slightly, but perhaps the international exposure and prominence of Bebo made it worth the price. Regardless, it definitely marks a continued move away from the internet service provider business and towards the much more profitable content provider side of things. Combined, these factors make TWX a stock worth watching!

Thursday, March 13, 2008 3:23:36 PM UTC

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Talbots Attempts a Turnaround (TLB)

Talbots Logo

Talbots Inc. (NYSE: TLB) announced yesterday that it lost money in the fourth quarter due to a drop in same store sales and charges from the acquisition of J. Jill stores in an 8-K filing with the SEC. For the fourth quarter, Talbots lost over $171 million or $3.23 per share compared to a basically break-even fourth quarter in 2006. Of the $3.23 loss per share, $2.71 was due to a write-down of intangible assets of J. Jill which was purchased in May 2006.

Talbot is specialty retailer and cataloger clothing, specifically children’s and women’s clothing through Talbots Kids and Talbots Misses. The company runs 25 separate catalogs, 140 superstores and 23 outlet stores. Unfortunately for the company, the May 2006 J. Jill acquisition has been less profitable than hoped and necessitated greater write downs because of lower growth and earnings for the brand.

The J. Jill acquisition was designed to update Talbots more traditional lines and drive growth; however, the brand has proved a money drain – not only is growth slower in that line rather than faster than Talbots other brands, but the women’s retail industry as a whole is experience a significant downturn.

The overall health of Talbot stores seem to be in decline with quarterly sales down 8% to $587 million from $638 million. Talbots President and CEO Trudy Sullivan said, “2007 was a difficult year for Talbots, However, we feel very good about the progress we have made, and believe we are well-positioned to succeed in 2008. Despite the challenges of a weak economic environment, we identified and implemented a number of key initiatives to drive improved short- and long-term performance.”

These key initiatives include closing its 78 men’s and children’s stores to focus on its core customer- middle-aged women.
Looking forward, Talbots forecasts 3% revenue growth for 2008 – even assuming “slightly negative” same-store sales growth. To turn the company around, management is going to have to continue closing under performing stores as well as reinvigorate its product offering.