Feb. 25 (Bloomberg) -- Take-Two Interactive Software Inc., maker of the top-selling ``Grand Theft Auto'' video games, posted a record gain in Nasdaq Stock Market trading after Electronic Arts Inc. made a $2 billion takeover offer for the company.

Take-Two rose above Electronic Arts' $26-a-share offer, a sign investors anticipate a higher bid. Take-Two rejected the cash offer on Feb. 22, leading Electronic Arts to go directly to shareholders yesterday. The offer is 64 percent more than the closing price Feb. 15, the last day of trading before the bid.

Electronic Arts, the maker of ``Need for Speed'' racing and ``Madden'' football games, is seeking to take advantage of overlapping sports titles and the fourth installment of ``Grand Theft Auto.'' Take-Two Chairman Strauss Zelnick said in an interview yesterday that the offer undervalues the New York-based company and he's willing to talk to Electronic Arts after releasing the next ``Grand Theft Auto'' at the end of April.

``This acquisition shows that money is really no object for Electronic Arts when it sees an asset it wants,'' said Evan Wilson, an analyst with Pacific Crest Securities in Portland, Oregon. ``At $2 billion there is significant uncertainty whether Electronic Arts will be able to glean a return on investment that's beneficial to its shareholders.''

Take-Two jumped $9.53, or 55 percent, to $26.89 at 4 p.m., the biggest gain ever for the company, which went public in 1997. The stock has gained 46 percent this year. Electronic Arts fell $2.60, or 5.2 percent, to $47.14, the most since May 2006.

Wilson rates Take-Two ``outperform'' and Redwood City, California-based Electronic Arts ``sector perform.''

Still Biggest

``There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today,'' Electronic Arts Chief Executive Officer John Riccitiello said in a Feb. 19 letter to Take-Two's Zelnick that was made public yesterday.

A purchase would allow Electronic Arts to maintain its standing as the world's largest video-game maker, a spot it will lose when Vivendi SA combines its games unit with Activision Inc. Together, Take-Two and Electronic Arts had about $4 billion in sales last year, compared with a $3.8 billion pro forma estimate for Activision and Vivendi's games business.

Vivendi said in December it will contribute its $8.1 billion video-game business and pay $1.7 billion in cash for a 52 percent stake in the combined company.

Bid Raised

Electronic Arts disclosed yesterday that it originally bid $25 a share for Take-Two and raised the offer after the company's initial rejection. The current $26 proposal will remain open to give Take-Two's board and shareholders more time to consider the offer, Electronic Arts said.

Take-Two's board didn't give an indication of the purchase price it would accept, Riccitiello said on a conference call today, adding that he'd prefer a ``friendly transaction.''

Electronic Arts sees Take-Two as a strategic asset and ``may be willing to pay slightly, but not materially higher than its current offer,'' Citigroup Inc. analyst Brent Thill in San Francisco wrote in a note to clients. He recommends investors buy Electronic Arts and Take-Two shares.

THQ Inc., the third-largest U.S. video-game publisher, may also be a takeover target because the video game industry rewards scale, Thill said today. THQ, based in Agoura Hills, California, has struggled to create successful intellectual property and may face difficulty renewing its license to create games based on movies from Walt Disney Co.'s Pixar animation studio, said Thill, who recommends holding the shares. The stock gained $1.71, or 9.5 percent, to $19.65, the biggest jump since October 2005.

`Growth Industry'

The gamemakers are trying to capture a bigger slice of an expanding market. The global video-game industry will grow an average of 9.1 percent annually to reach $48.9 billion in 2011, according to a June 2007 report by PricewaterhouseCoopers. That's faster than the 6.4 percent growth rate for the overall entertainment industry, the report said.

``The company is still in the midst of rebuilding in a growth industry, and we have the biggest release in the industry coming,'' Take-Two Chairman Zelnick said. ``EA has been clear about its growth appetite.''

Take-Two hasn't reported an annual profit since 2005 and has been without a hit since postponing the previously scheduled October release of ``Grand Theft Auto IV.'' Sales have been hurt by the delay and by concerns over violent content in its ``Manhunt 2'' game released last year. That title was banned in the U.K., and Target Corp., the second-largest U.S. discount chain, pulled it from stores in November.

Take-Two's earnings may peak this year with the release of ``Grand Theft Auto,'' making it difficult for Electronic Arts to justify paying a high multiple on this year's earnings, Pacific Crest's Wilson said in an interview with Bloomberg Radio.

One Game

``Things don't look so rosy anymore,'' Wilson said. ``They're really only driving significant profit from one game.''

Electronic Arts, which first approached Take-Two in December, wanted to complete an acquisition after the release of ``Grand Theft Auto IV'' and before the end of the summer to capture the fall and Christmas buying season, Riccitiello said.

Take-Two's Zelnick said today the company didn't want to be having private or public discussions now because it doesn't want to take any chances that could interfere with the release or success of ``Grand Theft Auto.''

``We're focused on building value for our shareholders, and the best way we can do that now is to focus on our internal operations including that title,'' Zelnick said in an interview.

Take-Two's stock already reflects investor optimism for a strong release of ``Grand Theft Auto IV'' when it ships April 29, Riccitiello said yesterday in an interview.

Wilson at Pacific Crest said Take-Two's rejection of the offer means that the quality of the latest ``Grand Theft'' may exceed Wall Street's expectations. The series is known for its graphic violence as players commit robberies and assassinations to rise through the ranks of organized crime.

(Electronic Arts held a conference call on the offer earlier today. For a replay, visit http://www.eatake2.com/call.htm.)

To contact the reporters on this story: Nancy Kercheval in Washington at nkercheval@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.

Last Updated: February 25, 2008 16:15 EST