Video game giant Electronic Arts on Sunday said it had made an unsolicited $1.9 billion offer for Grand Theft Auto publisher Take-Two Interactive Software, escalating its battle with Activision for the title of biggest video game maker.

Electronic Arts said it had pursued the deal privately since December, and Take-Two on Sunday immediately rejected the offer, a 50 percent premium to its Friday close, and accused EA of trying to scoop up a company in turnaround with an inadequate bid just before the publication of its next hit.

The $26-per-share all-cash bid is Electronic Arts' answer to Activision Inc's $18 billion acquisition of the gaming unit of French media and telecoms giant Vivendi. That combination, announced last November, is set to challenge EA's long-standing industry dominance.

Electronic Arts, publisher of blockbuster games like Madden and Need for Speed, would become the largest sports game maker by far if it buys Take Two.

The offer follows months of speculation that Take-Two would be acquired by a major games publisher or media firm, with News Corp and Viacom often mentioned as possible suitors as they eye the fast-growing video game industry.

Take-Two said the offer valued it at a significant discount to peers. EA's offer would be about 18 times its expected fiscal 2008 earnings, while France's Ubisoft trades at 34 times expected earnings in the year ending March 2009 and Activision, with a similar year, trades at 24 times.

Take-Two Chairman Strauss Zelnick, who helped oust former management last March after it was laid low by accounting scandals and controversy over its games, said he hadn't ruled out a potential deal.

We didn't slam the door, we just said look, the price is not right and the time is wrong, Zelnick told Reuters.

He declined to say what price he thought Take-Two should command but said it was clear EA was trying to pick up the company cheaply before the April 29 debut of Grand Theft Auto IV, which is widely expected to be the biggest game of 2008.

Asked if Take-Two would enter into formal discussions with EA before the game's launch, Zelnick said: We have to see what steps they take, and we have and will continue to operate in the best interest of shareholders.

If something happens that creates a reason to do something different, its our job to do something different.

In an interview, EA Chief Financial Officer Warren Jenson said the company hoped to clinch a deal quickly for Take-Two, but would keep its options open for a possible hostile bid. He said the purchase would add to earnings at least by its 2010 fiscal year if it can close a deal by the year-end holidays.

Our objective is to make this a friendly deal, but we have to keep all options open, Jenson said when asked it EA would consider a hostile bid for Take-Two.

EA had $3.4 billion in cash and short-term investments at the end of December.

A key question would be whether EA could retain Rockstar, the development studio behind the Grand Theft Auto franchise, said Michael Pachter, an analyst with Wedbush Morgan.

Of the video game companies that could manage Take-Two's assets, EA could do it, Pachter said.

But the Rockstar guys are not the classic kind of studio that fits into the EA fold, Pachter said. It seems like an awful lot to pay for 'GTA' with no guarantee that the team sticks around and is not a great cultural fit.

A purchase would also hand EA a virtual monopoly in sports games since Take-Two also makes some of the only titles capable of rivaling EA's powerful football, hockey and basketball franchises.

EA said it made the $26-per-share proposal after an earlier offer at $25 was rejected by Take-Two. EA said the rejection of the proposals by Take-Two's board prompted EA to make its offer public to appeal to Take-Two shareholders.

It represents a significant premium and certainty versus risk and lots of uncertainty, EA's CEO John Riccitiello told Reuters.

We see a great deal of risk for Take-Two. Many companies that held the number three, four, five or six position in U.S. publishing and they are no longer there today or they are penny stocks, Riccitiello said.

A former EA executive who ran private equity firm Elevation Partners, Riccitiello returned as EA's CEO last April. He has tried to revitalize the company by reorganizing it into four divisions, or labels, and in October engineered the purchase of two top independent game studios, Bioware and Pandemic, in a deal worth up to $860 million.

Shares of EA rose 79 cents, or 1.6 percent, to close at $49.74 on Nasdaq on Friday.

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