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Game maker in acquisition talks

Interplay Entertainment, which is getting a $5 million advance from Microsoft for "Matrix" games for the Xbox, is in negotiations to be acquired by an unnamed company.

Interplay Entertainment, a struggling video game maker that is getting a $5 million advance from Microsoft for "Matrix" games for the Xbox, is in talks to be acquired by an unnamed company.

If a deal is reached, Interplay said in a statement Tuesday, shareholders could get a "modest premium" on the average price of Interplay's stock over the past 20 days. Investors, however, appeared nonplussed about the possible deal. Shares of Irvine, Calif.-based Interplay were off 16 cents, or 5 percent, at $2.95 in afternoon trading.

Despite creating popular games such as "Baldur's Gate" and those based on the TV series "Star Trek," Interplay has been losing money for several quarters. However, analysts are expecting a profit by the second half of this year as the company releases new titles for the PC and Sony's PlayStation 2.

"They are definitely on the mend," said James Lin, an analyst at Jefferies & Co.

In a regulatory filing last month, Interplay said it is getting a $5 million advance from Microsoft to develop games for the Xbox based on the movie "The Matrix" and any sequels. Interplay is also developing "Matrix" games for other consoles, but the deal with Microsoft calls for the first Xbox game to precede any "Matrix" game for other consoles by six months.

Lin noted that the company's stock had been trading in the $2 range prior to this month's Electronic Entertainment Expo trade show.

As for who the interested party is, Interplay won't say. Lin said Interplay's stable of titles has appeal for almost any major game publisher.

"What has been rumored is Electronic Arts, but I highly doubt that is the case," Lin said.

Although the proposed deal may not give shareholders much more than the company's current price, UBS Warburg analyst Michael Wallace said a deal would be good news for the 18-year-old game maker.

"With a larger owner I think Interplay could do a lot better," Wallace said. "They wouldn't have to worry about funding."

Wallace said Interplay's cash woes have hurt as the company looks to develop new games and increase its focus on console games.

"Being low on cash, it is hard to start new projects," Wallace said.