Mad2,
The sell-off with software developers last week was a knee jerk reaction to the disappointing numbers posted by Midway. Yes, the new PlayStation2 machine will be backward compatible, allowing users to play old and new games alike...but in addition to playing your favorite games, you can also play your favorite music, on a built in cd player, watch your favorite movies, on a built in dvd player, while at the same time offering high speed internet access.
Mad2, I must respond to a comment from your post (prior to this last one) wherein you say that you believe ELBO will lose either way, now that Babbages has made a competing bid for Funcoland. I respect your opinion, but must disagree with your comment on this particular topic. I feel strongly that ELBO is in a very strong win/win situation here by virtue of the fact that they were first to the dance and, as a result, have a definitive merger agreement with FNCO. The agreement is very comprehensive as I am sure you can imagine (given the fact the ELBO, according to Joe Firestone, looked at buying FNCO for the last two years). In the agreement 19.9% of FNCO shares have already been sold to ELBO by the selling shareholder [David Pomije] at a irrevocable price of $17.50. According to the agreement, this was done to better insure the timely completion of the deal. In addition, if for any reason FNCO would elect to accept a competitive offer, ELBO has to be given complete disclosure of the entire details of the competitive offer and has the right to match the offer if they [ELBO] so choose. If ELBO decides not to match, they would receive the higher offer amount for the shares they own at $17.50, plus they would receive a break-up fee of $3.0M and recovery of out of pocket expenses up to $0.5M. So, if ELBO just walked away from this one right now, they walk with $4.00 a share X 1,200,000 shares or $4.8M, profit on the stock plus the $3.5M break-up fee for a total of $8.3M for their trouble. However, my personal feeling is that ELBO will agree to one push here...probably countering with an offer of about $131M ($135M, minus the break-up fee) just to see if babbages goes away. If babbages comes back with a higher offer, say $145M, then ELBO would receive even more for the Pomije shares and, at that point, I think they would probably let Babbages have the deal. At that point though, what would Babbages have accomplished other than paying too much for an acquisition that, at that price, would not be accretive to their earnings, incurr debt that would need to be serviced to the tune of about $12M a year and, at that price, they will have put about $10M in ELBO's pocket. So, quite frankly, I can't see how ELBO can come out here with anything other than a win...whether they wind up with FNCO or not.
At any rate, all this is fun and exciting...and it certainly gives us all something to talk about while we are waiting for ELBO's Q-1 announcement and the E3 convention next month. I think they are going to surprise again or Firestone would have given some guidance by now to indicate differently. Sorry for running on here. Good luck to you with all your investments.
RBL
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