Take Two Interactive (NASDAQ: TTWO), the manufacturer of the Grand Theft Auto video game series, could be a buyout target from World of Warcraft giant Activision Blizzard (NASDAQ: ATVI).

It was a week of ups and downs for Activision Blizzard but by Friday morning, the downs were outnumbering the ups. The announcement of Project Beachhead, a new initiative that will include the formation of a new game development studio and business division focusing online services, was greeted poorly. That’s because Activision’s quarterly earnings report on Wednesday signaled to shareholders that the company may have found yet another new revenue stream inside its successful military shooting game Call of Duty.

ATVI also lowered its 2011 guidance down to $3.95 billion in revenue because of doubt over whether Blizzard, makers of World of Warcraft, will be releasing any titles this year. Activision also announced that it was laying off 500 staff members as well as shuttering its Guitar Hero business division, which was the company’s most valuable asset just three years ago.

The cancellation of Grand Theft Auto-competitor True Crime: Hong Kong, which was in development at a third-party studio under contract from Activision, was the icing on the company’s bad news cake. Shares fell -8% by the time the markets closed on Thursday, trading at around $10.75. As of this writing, it has yet to rebound.

But rumors of a Take Two Interactive buyout from Activision emerged today as a new rub in the future of ATVI stock. U.K.-based MCV reported on Friday morning that the cancellation of True Crime is a move that comes ahead of a bid to acquire publisher Take-Two (NASDAQ: TTWO.) Take-Two is the publisher behind studio Rockstar Games’ monumental hits like Grand Theft Auto IV and Red Dead Redemption as well as other internally developed titles like Bioshock and the NBA 2K franchise.

Having just recently reported net profit growth of 7% year-on-year, up to $40.8 million for the holiday quarter, just this week, Take-Two’s business has to be looking good to Activision right now. With rumors of Grand Theft Auto V on the horizon and a new Rockstar franchise in L.A. Noire due in just a few months, ATVI undoubtedly sees a way to cement its position as the world’s biggest game publisher.

MCV quoted a “senior executive” as saying, “There are very strong rumors amongst people at a very senior level within the global business. But there’re not much more than that at the moment–they are just rumors. And, of course, given Activision’s news this week, everyone is now looking to see what their next move is. But you can definitely put two and two together and make four-ish.”

The sales forces of Call of Duty, World of Warcraft, Grand Theft Auto, and NBA 2K all under a single roof are enough to make any industry follower salivate, but investors with long memories will recognize a familiar pattern inside of these rumors. At the beginning of 2008, before Activision overtook them as the world’s biggest publisher thanks to the growing strength of the Guitar Hero franchise, Electronic Arts (NASDAQ: ERTS) was rumored to be preparing a bid for Take-Two. That rumor came to pass, culminating in an attempted hostile take over in March of 2008, just one month ahead of Grand Theft Auto IV‘s release. Take-Two fended off EA’s advances until the company gave up the following September.

History tends to repeat itself. There’s a strong likelihood that ATVI will make Take-Two a serious offer in the coming months, and they may even attempt a hostile take over as EA did. Take-Two is not stupid however, and the company’s impressive growth of the past three years during a time when other major publishers have seen significant declines, shows a company that is only just realizing its full earning potential.

If ATVI wants to keep its spot as king of the hill, they better find a better way to make money than running viable franchises into the ground and living off of Blizzard’s dominance of the PC market.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.