That offer was rebuffed by Take-Two, prompting Electronic Arts to send a revised proposal with a strong suggestion that the Redwood City, Calif.-based software company was prepared to take more aggressive steps to merge the two firms.

In a letter to Take-Two Chairman Strauss Zelnick, Electronic Arts CEO John Riccitiello urged the company, which is known for its Grand Theft Auto video-games, to accept the offer.

But on Sunday Take-Two also said in a statement that its board of directors has rejected the offer which it said "substantially undervalues Take-Two's robust and enviable stable of game franchises, exceptional creative talent and strong consumer loyalty."

However, Riccitiello warned Take-Two in his letter that rejecting the proposed deal would not be in the interest of Take-Two's shareholders. He said EA was raising its offer "to further demonstrate our seriousness and encourage you to move forward now."

"We believe that Take-Two's shareholders would not be well-served by any further delay in negotiating and completing the proposed merger," he said. "While the videogame industry remains an attractive, high-growth business, the challenges and risks in the business are escalating, and the need for scale is becoming more pronounced."

He added: "There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering."

EA, which is known for its sports video-games such as "Madden NFL," noted that its $26 a share offer represents a 64% premium on Take-Two's closing price on Feb. 15.

Riccitiello said EA would prefer to negotiate the terms of the proposed merger, but he also strongly hinted that his team may take their offer directly to Take-Two's shareholders.

"Our strong preference is to conduct a private negotiation," he wrote. "If you are unwilling to proceed on that basis, however, we may pursue other means, including the public disclosure of this letter, to bring our offer and the compelling value it represents to the attention of Take-Two's shareholders."

But Take-Two countered that EA's bid "is highly opportunistic and it's attempting to take advantage of our upcoming release of Grand Theft Auto IV, one of the most valuable and durable franchises in the industry."

In a prepared statement, Zelnick, Take-Two's chairman, said his company's board had offered to engage in "a good-faith dialogue with EA" to discuss "the appropriate value of Take-Two as a first step to realizing a mutually-beneficial transaction."

"However, given the great importance of the Grand Theft Auto IV launch to the value of Take-Two, the Board has determined that the only prudent and responsible course for our Company and its stockholders is to defer these discussions until immediately after Grand Theft Auto IV is released," he said.

He said the Take-Two board has proposed discussions to begin on April 30, the day after Grand Theft Auto IV is scheduled to be released.

EA's bid for Take-Two comes amid speculation that it will likely face more competitive pressure with the pending merger between Activision Inc. (ATVI:

Activision Inc