Aug. 18 (Bloomberg) -- Electronic Arts Inc. will drop a $2 billion hostile bid to acquire Take-Two Interactive Software Inc. and meet with the smaller video-game maker to review its financial information.

Electronic Arts will let its unsolicited tender offer expire tonight because it wouldn't be able to complete a merger in time to capture holiday sales, Chief Executive Officer John Riccitiello said in a letter today to Take-Two Chairman Strauss Zelnick. Missing the shopping season forces the company to reevaluate its $25.74-a-share bid, he said.

``They're not trying to figure out whether they should raise the bid but whether it's worth $25.74,'' Todd Greenwald, an analyst at Signal Hill Capital Group in Baltimore, said in an interview.

Take-Two, maker of the ``Grand Theft Auto'' games, said separately it would provide information to Electronic Arts to move the talks forward. The company rejected Electronic Arts' offer in February, saying it undervalued the business. Take-Two shares have traded below the offer price since June and fell 4.4 percent, or $1.09, to $23.75 today on the Nasdaq Stock Market.

Staying independent remains an option, Zelnick said today in an interview. ``If anything we feel the company gets stronger and healthier with the passage of time.''

``Grand Theft Auto IV'' had the biggest release in the industry's history, with sales of $500 million in the first week following its April 29 debut. Sales dropped to 132,000 copies in July from 396,000 in June and 1.31 million in May, according to NPD Group Inc., which tracks U.S. retail activity.

Sales Fall-Off

The July decline was one of Electronic Arts' considerations in its decision to allow the tender offer to expire, Jeff Brown, a spokesman for the Redwood City, California-based company, said in an interview.

``Part of the premium was for holiday sales of `Grand Theft Auto,' and that opportunity is getting smaller,'' said Pacific Crest Securities analyst Evan Wilson in Portland.

The decline wasn't surprising after the game's record start, Zelnick said. Sales will pick up during the holiday season and as console manufacturers reduce prices, he said.

```Grand Theft Auto' sold more than anyone expected, except perhaps me,'' Zelnick said. ``I still think we're going to continue to sell more.''

Greenwald rates Electronic Arts shares `hold' and doesn't own any. He doesn't have a rating on Take-Two. Wilson rates both stocks ``sector perform'' and doesn't own either.

Take-Two shares have gained 29 percent this year. Electronic Arts, down 18 percent this year, fell 48 cents to $47.76.

`Act Quickly'

``Our board remains unwavering in its belief that EA's unsolicited conditional tender offer of $25.74 per share was inadequate,'' Take-Two said in the statement today. The company will demonstrate ``significant strides'' made since Electronic Arts last reviewed the business in early 2007, Take-Two said.

Electronic Arts, which lost its status as the world's largest video-game maker with the creation of Activision Blizzard Inc. in July, doesn't plan to raise its bid, Brown said.

``We have been price disciplined throughout this process and we will continue to be price disciplined,'' Brown said.

Take-Two will give Electronic Arts information including a three-year product-release schedule and financial estimates, Zelnick said in a letter to Riccitiello. The company will ``act quickly,'' he said.

Antitrust Review

The Federal Trade Commission is scheduled to complete an antitrust review of the proposed offer this week, Electronic Arts said today. The company had previously extended its tender offer five times to let regulators complete their work.

Zelnick said last month the company was reviewing options related to the offer, ``chief among them to remain independent.'' The company in June reported its first quarterly profit in more than two years, helped by ``Grand Theft Auto IV.''

Other Take-Two games include the science-fiction title ``BioShock'' and the ``Sid Meier's Civilization'' series.

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net; Michael White in Los Angeles at mwhite8@bloomberg.net.

Last Updated: August 18, 2008 18:10 EDT