Take-Two shares fall on sale of video games unit, to post wider 2010 loss

Take-Two shares fall on sale of video games unit

PHILADELPHIA — Shares of Take-Two Interactive Software Inc. fell Tuesday after the company sold a video games unit, a move it said would lead to a wider loss in its fiscal first quarter and full year 2010.

The developer of video games, whose titles include the popular Grand Theft Auto series, said late Monday that it is selling its Jack of All Games business to Synnex Corp. for about $43.3 million in cash and payments based on reaching certain milestones.

Take-Two said the sale of Jack of All Games, which distributes third-party video games, hardware and accessories, will lead to a wider first-quarter loss in a range of 45 cents to 55 cents per share, excluding one-time items. That’s down from a prior forecast for a loss of 40 cents to 50 cents per share.

Revenue would plunge to a range of $90 million to $140 million without Jack of All Games, from $210 million to $260 million.

For full-year fiscal 2010, the company now expects its loss will widen by 8 cents to a range of 48 cents to 68 cents, and revenue is expected to drop to a range of $710 million to $910 million from $1 billion to $1.2 billion.

Synnex provides services including product marketing, back office outsourcing and sales support to software developers and other information technology manufacturers.

Analysts said that by shedding a non-core business, Take-Two will be able to concentrate on developing its own video games.

Wedbush analyst Michael Pachter said the sale had been expected for years.

He lowered his first-quarter revenue estimate to $125 million from $220 million, and loss estimate excluding one-time items to 55 cents per share from 50 cents. He also cut his 2010 outlook.

Pachter said without Jack of All Games, the performance of Take-Two’s core business of creating video games will be more visible.

Sterne Agee analyst Arvind Bhatia said the sale means “one less distraction for management” and the initial drop in the stock comes from a “knee-jerk” reaction to Take-Two’s wider loss and lower revenue forecasts.

But Bhatia said with Take-Two’s business now focused on development of video games, it might make a good acquisition target.

However, the sale doesn’t remove Take-Two’s larger problems, which include operating costs that are “too high” relative to the revenue it pulls in and its inability to develop better video games on time, said Kaufman Bros. analyst Todd Mitchell.

Pachter said activist investor Carl Icahn’s recently disclosed holdings in Take-Two could shake things up at the company. He said Take-Two has been too “lax” with its development teams, which take four to six years to develop games and add $20 million to the cost.

If Take-Two cuts its development time to two to three years, costs would fall and the company could be consistently profitable starting in fiscal 2011, Pachter said.

Shares of Take-Two, based in New York, fell 23 cents, or 2.4 percent, to $9.20 in afternoon trading. Synnex, based in Fremont, Calif., was up 79 cents, or 2.8 percent, to $28.90.