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The old adage “buy the rumor, sell the news” came to the forefront of the markets when Take-Two Interactive Software Inc. (TTWO) became one of the top-performing S&P 500 stocks on Wednesday. Investors poured into the publisher of hit video-game series like “Grand Theft Auto” and “NBA 2K” on buyout rumors, which are now considered groundless and ridiculous in retrospect.
Before Wednesday’s enormous gain, Take-Two stock had been languishing. Shares of the firm reached an all-time high of $137.99 last September before plunging more than 30% to Wednesday’s $96.03 close. Investors are having a tough time figuring out if the stock will eventually reclaim those highs, especially if a takeover rumor and massive game releases – including that of “Red Dead Redemption 2” back in October – can’t even lift the stock to those insane levels.
Here’s the rumor that boosted TTWO stock to fresh highs on Wednesday – and what investors can expect from it in the coming months…
Shares started climbing once rumors began circulating that Sony Corp. (SNE), which produces the PlayStation consoles, was considering acquiring Take-Two and its array of subsidiaries, including “Grand Theft Auto” and “Red Dead Redemption” publisher Rockstar Games as well as the various 2K sports games publishers. The speculation appeared to begin with a note from Joel Kulina, a tech and media analyst for wealth management firm Wedbush Securities, who said Sony is in “advanced board level discussions” regarding the buyout and is eyeing a “cash deal.”
However, Kulina has been quick to backtrack the veracity of the claim, saying how he wasn’t the source of the rumor and that he wasn’t “sure who quoted me as I didn’t speak with anyone over the phone.” He went on to clarify that the takeover rumor is “purely unconfirmed market speculation.”
The “he said, she said” gained more steam when MarketWatch became the first news outlet to report on the rumor. The reporters confirmed they heard about it from a note Kulina released Wednesday, citing that they ran with it because “Joel’s in a good position to know what’s moving individual tech stocks, even if they are just rumors.”
How Investors Reacted
Investors certainly bought the rumor, pushing shares 6.9% higher on the day from $89.85 to $96.03, the highest level since Feb. 8. The rally marked TTWO’s best daily performance since last October. However, shares are still down 6.7% in 2019 from $102.94 on Dec. 31 to $96.03.
The Bigger Picture
Acquisitions rumors are known to lift stock prices all the time, but the case of Sony potentially buying Take-Two is particularly strange given how a merger would likely outrage the gaming community and serve as an overall poor business decision.
The outrage would specifically stem from the fact that, if Sony owned Take-Two, Sony would release every Rockstar and 2K title strictly on the PlayStation platform. While the PlayStation 4’s more than 60 million console sales dwarf the at least 7 million people worldwide who own the rivaling Xbox One, Sony would face enormous scrutiny if it decided to release some of the best-selling video-game series of all time strictly on its own platform. After all, more than 17 million copies of Rockstar’s latest “Red Dead Redemption 2” were sold within the first 12 days of its release back in October.
Furthermore, Sony would have to pay an enormous price tag for Take-Two that, in the long run, likely wouldn’t be worth the purchase. Kulina’s note placed TTWO’s sale price at $130 per share, marking a massive 45% premium to Tuesday’s closing price of $89.85. It would be difficult to make a return on that investment if Sony were to cut out Microsoft Corp.’s (MSFT) huge Xbox market by releasing Take-Two’s games strictly for the PlayStation.
Take-Two’s boost on Wednesday provides no indication for where the stock may go next. The baselessness of the rumor – combined with the overwhelmingly negative public perception of a potential deal – ensures that the gains likely won’t last in the long term. Investors should continue to follow the news but stick to Take-Two’s business fundamentals when considering buying shares of the company.