Palo Alto (California), Oct 6: GT Interactive SoftwareCorp, looking to gain a bigger share of the video game business, said that it agreed to buy rival MicroProse Inc for about $250 million in stock.

The deal would make GT Interactive, publisher of best-sellers like "Duke Nukem" and "Oddworld," the second-largest US game software company, behind Electronic Arts Inc, with more than $500 million in annual revenue.

Under terms of the agreement, New York-based GT would pay 0.7 of its shares, or $8.62, for each MicroProse share.

The deal, expected to be completed by the end of the year, would not dilute its 1998 earnings, GT said.

"A major part of our strategy has been to build our publishing business," said Ron Chaimowitz, GT chief executive. "MicroProse has a strong global brand and a strong internal (software development) studio."

In recent years, bigger video game software companies have snatched up smaller ones to gain more distribution clout with retailers. Acquisitions in this business also are driven by a shortage of talented programmers.

The acquisition of MicroProse, based in Alameda, California, also would significantly boost GT's internal software capabilities, a key step in improving the company's profits.

Currently about 46 per cent of GT's revenue comes from the software distribution business, which has razor-thin profit margins. Since early 1996, GT has bought seven video game software companies to be able to sell more products it developed internally.

With MicroProse's product library, including the "Falcon" series of flight simulators and games based on "Star Trek," more than 75 per cent of GT's revenue would be from publishing, Chaimowitz said.

Before Sunday's announcement, analysts speculated that MicroProse, which changed its name from Spectrum Holobyte Inc. three weeks ago, would be acquired.

The company had several big titles, but had been posting erratic financial results because of declining distribution clout with big retailers.

In the fiscal year ended March 31, MicroProse reported net income of $7.99 million, or 28 cents a share, on revenue of $100.3 million. The year before, it reported a loss of $39.8 million, or $1.70 a share, on revenue of $59.7 million.

"We think it was in the best interest of the shareholders," said Derek McLeish, MicroProse senior vice president of marketing. "They're strong in distribution, we're strong in development." (Reuter)

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