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Shareholders of Take-Two Plot a Revolt

Started by DMenacer, March 08, 2007, 05:25:01 AM

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DMenacer

The New York Times
Shareholders of Take-Two Plot a Revolt
http://www.nytimes.com:80/2007/03/08/technology/08take.html?th&emc=th
By MATT RICHTEL
Published: March 8, 2007

A consortium of investors disclosed yesterday that it intended to oust the board and possibly the top management of Take-Two Interactive Software, a video-game publisher that has been plagued by legal, regulatory and accounting problems. The unusually aggressive maneuver, by investors who hold a collective 46 percent of the outstanding shares of Take-Two, comes just a few weeks after Ryan A. Brant, the company's founder and former chief executive, pleaded guilty to falsifying records in a stock option backdating scheme.

The takeover effort also is unusual in that it entails the cooperation of several hedge funds and mutual funds. The investors declined comment, citing legal restrictions, but their filing with the Securities and Exchange Commission said they were seeking to appoint Strauss Zelnick, the former head of BMG Entertainment, as Take-Two's new chairman. The filing said Mr. Zelnick would ask the board for the authority to replace Take-Two's chief executive, Paul Eibeler, and its chief financial officer, Karl H. Winters.

Take-Two Interactive, publisher of the hit Grand Theft Auto game franchise, issued a statement saying that it was pleased that the investors recognized the value in Take-Two. Ed Nebb, a spokesman for the company, which is based in New York, declined to say whether the statement was meant to indicate that the company would fight the takeover effort. The board of Take-Two was surprised to learn of the takeover effort and was still considering yesterday how to address it, according to a person briefed on the internal discussions. The person asked for anonymity, saying that commenting publicly could compromise his employment.

Wall Street applauded the prospects of a change in direction at Take-Two. Its shares rose 7.6 percent, or $1.34, to $18.95. The takeover plan calls for reducing the nine-member board to six members, and then installing new people. Take-Two's annual meeting is scheduled for March 23. Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said prospects for the plan's success were good, given the large number of shares the investors collectively own.

"All they need to do is pick up a few more votes," he said. He added that ousting the board and possibly management was not a step that most passive investors take lightly, and appeared to reflect enormous dissatisfaction. "To get the largest shareholders angry enough to step in is very rare," Mr. Elson said. "You've got to be very angry to do it." While efforts by hedge fund investors to steer companies in which they have controlling shares is on the increase, it is less common for mutual funds to do so.

The mutual fund manager OppenheimerFunds, which has a 24.5 percent stake in Take-Two, according to the S.E.C. filing, is among the investors seeking to remake the board. The group also includes the hedge funds D. E. Shaw, which has a 9 percent stake, according to the filing, and partners of SAC Capital, which owns 7.8 percent. Emmanuel Ferreira, portfolio manager for OppenheimerFunds, declined to comment. D. E. Shaw and SAC Capital also declined to comment. Industry analysts said that it was not clear that Take-Two could put its troubles behind it, even if the investors succeeded. Daniel Ernst, an analyst with Hudson Square-Soleil Research, said that among the issues facing the company was the fundamental question of whether it could create and publish big hits outside the Grand Theft Auto franchise.

Take-Two also remains the subject of a criminal investigation by the New York district attorney's office regarding stock options backdating and possibly broader issues. The S.E.C. also has started an informal investigation into the issue. Last week, the company said it would take $42 million in charges relating to the backdating of options. Separately, the company has restated earnings and been investigated by various regulatory agencies looking into its accounting and marketing practices. The prospect of a takeover "is definitely a step in the right direction," said Mr. Ernst, who said he continued to have a sell rating on the stock.

In their filing, the investors propose to hire ZelnickMedia, Mr. Zelnick's firm, which turns around distressed media companies, for a monthly management fee of $62,500, the prospect of an annual bonus of up to $750,000 and the ability to buy a block of shares. Mr. Zelnick was chief executive of Crystal Dynamics, a video-game distributor, from 1989 to 1993. Steve Lipin, a spokesman for ZelnickMedia, said that Mr. Zelnick declined to comment.


BentonGrey

Hmm....I wonder how this will effect our friends in Irrational....

lugaru

It could mean more good than ill. Funds where witheld from legitimate projects as far as I can tell (no patch for the game) while money is given away to people through backdating and other schemes. If this revolt pans out we can HOPE that their company will be more legit in the future.

The Phantom Eyebrow

Verry interesting... 

I do hope this bodes well for Freedom Force.  Considering that we had pretty much ruled out any developments under the previous arrangement, this can hardly be a bad thing.

UnfluffyBunny

doubtfull, take2 is probably in financial danger now because of this....
the CEO Paul Eibeler had a seperation agreement, which activated when this got him fired... ready for this?

$2,475,000 severance pay

Immediate vesting of stock options and shares which includes 100,000 shares of restricted stock, options to purchase 450,000 shares at $21.28 and options to purchase 75,000 shares at $19.89

Accrued but unpaid base salary and vacation and unpaid expenses through his last day at the company.

A job as a consultant for the company through Oct. 4, 2007 paying $50,000 a month.

No change in his health care benefits through his consultancy

An $800 a month car allowance through his consultancy


sounds like a sweet deal to me ¬_¬
on the other hand, he -IS- forced to return his company credit card, office keys and.... stapler!!!

BentonGrey

Man....every CEO in America needs to be whipped until they give up every single ridiculous perk. :blink:

Spam

Quote from: UnfluffyBunny on April 06, 2007, 05:14:44 AM
and.... stapler!!!

Ah, I love Office Space. =)

But anyways, I hope Take-Two doesn't go down any hole because of all the lawsuits they had against them. Hopefully they can start developing more games, ASAP.

FORIAMSPAM!

lugaru

So far the media is worshipping the swift and efficient takeover by dissatisfied stock holders. They are saying that it was fast, well done and in the companies best interest, a model to follow when a company goes wayward.

BlueBard

Quote from: BentonGrey on April 06, 2007, 05:53:55 PM
Man....every CEO in America needs to be whipped until they give up every single ridiculous perk. :blink:

Ain't that the truth.  Extend that to every high-level executive.

They get company-paid luxuries and golden parachutes while the rest of us get free coffee and moldy tarps with holes in them.

("If you catch the wind just right, that tarp is good for at least the first 30 seconds of freefall...")