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Why EA Should Take THQ

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Merger could mean real value, room for growth.

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Editor's Note: Michael Comeau is a writer based in Brooklyn, NY. He blogs at LongShortTrader.com and VideoGameStocks.net.

Michael spent 2004 through 2008 at TheStreet.com. Before long, he became a featured columnist across the company's network of sites, and managed an investment newsletter service. Prior to TheStreet.com, Michael worked as a Research Analyst for Toyota Motor North America, studying the US auto industry and emerging automotive technologies.


Since we hit the credit crunch, Wall Street has seen a number of busted deals -- ranging from the aborted Harman (HAR) merger to Microsoft's (MSFT) attempted acquisition of Yahoo (YHOO). But as an avid follower of the video-game industry, the failure of Electronic Arts (ERTS) and Take-Two Interactive (TTWO) to achieve wedded bliss was the one that caught my attention.

What did EA have to gain with Take-Two? It's simple: mature-rated content in the form of Grand Theft Auto, and increased market share in sports. But there's another potential target that would give EA what it wanted with Take-Two, and that's THQ Inc. (THQI).

THQ is best known for its World Wrestling Entertainment (WWE) games and other licensed fare from the likes of Nickelodeon (VIA) and Walt Disney's (DIS) Pixar. The company also has some solid fully owned properties including Company of Heroes and Red Faction.

THQ was riding high a couple of years ago on the backs of hits like Saints Row and Cars, but the effects of tough competition and some product-management missteps have the stock down about 80% from its April 2007 highs.

Saints Row, a Grand Theft Auto-style, open-world action title, would certainly help EA build share in the mature-rated games market. But the real kicker would be THQ's Ultimate Fighting Championship (UFC) license. The UFC is the leading brand in mixed martial arts (MMA) -- a sport combining fighting disciplines such as boxing, wrestling, and jiu-jitsu. Once derided as human cockfighting by John McCain, the sport has become increasingly mainstream to the point that Bud Light (BUD) and Harley-Davidson (HOG) grace the UFC's famous octagonal cage.
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