EA and Take-Two Interactive start talking to each other

After months of a hostile-takeover stand-off, Take-Two Interactive Software said today that it expects to sign a confidentiality agreement with Electronic Arts. That means the two can start talking seriously about evaluating “strategic alternatives” that might result in an investment or purchase of Take-Two, which has the hottest property in games, Rockstar Games, the maker of “Grand Theft Auto IV.”

EA is also expected to let its $2 billion tender offer expire tonight at midnight Eastern time. Stauss Zelnick, chairman of Take-Two, said in a statement that the company can now make a presentation to EA’s board with confidential Take-Two information for the first time since early 2007. He said his board still believes the $25.74 a share bid is inadequate. Ben Feder, chief executive of Take-Two, said that his company is still talking to others.

On Friday, EA CEO John Riccitiello called Zelnick to talk about getting fresh information from Take-Two, since EA’s original offer was based on assumptions that are now out of date. EA also expressed concern that it would not be able to execute a merger deal by the important 2008 holiday game sales season. Riccitiello voiced his concerns in a follow-up letter this morning. The letter notes that EA expects the Federal Trade Commission to expect its antitrust review by Aug. 21. EA expects a favorable outcome from that review.

Clearly, these two powerhouses are moving a step closer to a deal. They really need to break the impasse, since Activision Blizzard, formed by the $18 billion combination of Vivendi Games and Activision, is now the biggest company in video games.