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Gaming stocks mega-merger? Activision is courting Take-Two

By George Tsemberlis for Kapitall.

Various analysts are reporting that Activision ( ATVI ) is in discussions to acquire Take-Two Interactive ( TTWO ) and its stable of AAA properties. Creating a supergroup of game publishing would definitely shake up the industry, and there are numerous reasons why such a move would be beneficial for both companies.

At first glance, it would seem like neither company is desperate for hot properties. Activision currently owns Blizzard, who has guided World of Warcraft well into its 10th year with its upcoming 5th expansion Warlords of Draenor . Blizzard also publishes the equally popular Starcraft and Diablo franchises, which continue to grow along with one of the most dedicated fanbases in the industry. Additionally, Activision publishes the perennial Call of Duty franchise, a mainstay of the holiday release season.

Take-Two Interactive holds a very diverse array of strategy and open-world publishers and titles, such as the long-running Civilization series, AAA shooters BioShock and Borderlands , as well as Rockstar, makers of the perpetually record-breaking Grand Theft Auto .

However, as AAA development becomes more and more expensive, the pressure to produce hit games under Activision becomes even greater. The company is known to show no mercy in shuttering long-running franchises that begin to underperform ( Tony Hawk and Rock Band to name a few). Bringing Take-Two under its wing would allow Activision to have more "sure bet" franchises in the event that its current properties begin to decline in popularity, as well as filling in some of its gaps in genre competitions such as sports games.

What's in it for Take-Two? This isn't the first time they have found themselves in the sights of another company. Mega-publisher Electronic Arts ( EA ) recently tried to purchase Take-Two at a price of $25.74 a share before negotiations ultimately fell through, mostly at the objections of Rockstar (at the time of writing, Take-Two currently trades at $23.43 a share).

However, unlike EA, Activision has a track record of extending its successful studios, such as Blizzard, a high degree of autonomy. That's why Rockstar and 2K have the freedom to delay a major title if it means producing a better game. Additionally, as a smaller company, developing Take-Two's AAA titles becomes even riskier as titles become more expensive to produce ( Grand Theft Auto V cost about $270 million to make) and having access to Activision's marketing and financial resources could be incredibly beneficial.

What else?

The key motive for both companies, however, is the opportunity to expand beyond gaming as a means of staying ahead of industry trends and consumer habits.

Blizzard is already releasing concept trailers for an upcoming movie based on the Warcraft storyline, and Take-Two also recently expressed interest in developing its properties into film, especially its more narrative AAA properties, such as Red Dead Redemption and Grand Theft Auto . It's possible that Blizzard might be pursuing the development of a full-on internal movie studio, and such a partnership would be incredibly helpful as both move into the always risky world of videogame to movie adaptations .

Do you think this gaming stocks merger will go through? Use the list below to begin your analysis, and let us know what you think in the comments.

Click on the interactive chart to view data over time.

1. Activision Blizzard, Inc. ( ATVI , Earnings , Analysts , Financials ): Activision Blizzard, Inc. publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Market cap at $14.67B, most recent closing price at $19.69.

2. Electronic Arts Inc. ( EA , Earnings , Analysts , Financials ): Develops, markets, publishes, and distributes game software and content for video game consoles, personal computers, mobile phones, tablets and electronic readers, hand held game players, and the Internet. Market cap at $8.64B, most recent closing price at $27.96.

3. Take-Two Interactive Software Inc. ( TTWO , Earnings , Analysts , Financials ): Develops, and distributes interactive entertainment software, hardware, and accessories worldwide. Market cap at $1.93B, most recent closing price at $19.61.

(Written by George Tsemberlis. Monthly return data sourced from Zacks Investment Research. All other data sourced from finviz.)

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