According to Seeking Alpha’s Stephen Frankola, Microsoft is indeed going to make a bid for Take-Two. Take-Two announced that there were “other suitors” besides EA, and Frankola argues that it is Microsoft:

I think that Microsoft (MSFT) is a likely bidder for TTWO. Microsoft already makes a video game platform (Xbox and Xbox 360) as well as independently publishes video games. Years ago, the company made a video game acquisition when it bought tiny Bungie studios, the company that developed the Halo series. Microsoft had already published the Halo games, but the company decided to bring the production in-house to reap the benefits of vertical integration. I can’t tell you how many dollars Microsoft has made, but Halo has now produced three best-selling games, and its exclusivity on the Xbox (it’s also available on the PC, but no other console) has driven console sales too.

Besides Halo, Grand Theft Auto, TTWO’s signature game, is the other dynasty of the video game universe. GTA IV, the most recent addition, released earlier this year, broke sales records that were set by Halo 3 last year.

Halo 3 generated sales of $170 million dollars during its first week last fall. (As previously discussed, virtually every component of creation, production, and distribution is internal; so much of this amount must fall straight to MSFT’s bottom line). Compare that to a major blockbuster movie’s debut weekend (the numbers are very similar), and the growing value of video games becomes clear.

However, that total, while impressive, is dwarfed by GTA IV’s first week, as the game reported $500 million in sales.

For about $2.5 billion (25% over ERTS’s bid, or about $32/share), MSFT could absorb that massive revenue- and profit-generating game along with the rest of TTWO’s portfolio. TTWO does make other games; BioShock was a surprise success this year, and its sports franchises, covering basketball, baseball, hockey, and tennis, are ranked highly and sell well.

Me? I highly doubt it. Last year, similar rumors swirled that Microsoft was bidding to buy Take-Two. However, Shane Kim swatted down the rumor, with a fairly obvious reason why the acquisition would never happen. Kim said in March 2007 that Microsoft “could never launch an acquisition bid at a third party publisher,” because of Take-Two’s “platform agnostic” approach. Essentially, Microsoft would be paying a huge sum of money (in this case, $2.5 billion) and not seeing the revenue streams from Take-Two’s PS3, Wii, DS and PSP business because Take-Two would become a Microsoft exclusive company.

Short and long of it–this probably isn’t happening.