Questions Linger as New Board Takes Control of Take-Two
Many questions remained Fri. after a dissident group of shareholders took control of videogame publisher Take-Two Interactive and ousted CEO Paul Eibeler. The company’s shareholders voted late Thurs. for the move; early Fri., Take-Two shares were up. But later that day shares fell, possibly after analysts offered a mixed take on the change’s impact; they were down 2.61% at $20.55 in late afternoon trading.
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The shareholders, who collectively own about 46% of Take-Two, said early last month in an SEC filing that they allied to oust Eibeler, install ex-BMG Entertainment CEO Strauss Zelnick as Take-Two chmn. and put their own candidates on its board (CED March 8 p11). Zelnick had planned to select a new Take-Two CEO and weigh the ouster of CFO Karl Winters.
Take-Two revealed after its delayed shareholder meeting Thurs. that the dissidents succeeded, as ZelnickMedia partner Benjamin Feder joined the publisher’s board, becoming acting CEO. As expected, Feder and Zelnick, along with UGO Networks CEO Jon Moses, William Morris Agency Senior Vp Michael Sheresky and Michael Dornemann, another ex-BMG head, joined Take-Two’s board. Independent board members John Levy and Grover Brown were reelected. The publisher didn’t say how many shareholders voted in favor of the dissidents taking over and how many voted against. It didn’t comment by our deadline.
The new board “plans to put in place strategies designed to revitalize Take-Two, focus on supporting and enhancing its creative output, improve its margins and ensure that the 2007 release pipeline meets expectations,” Zelnick said late Thurs. in a written statement. “We are here to maximize the value of Take-Two for shareholders, for game consumers and for the company’s employees,” he added.
But it was unclear how the new board intends to achieve these things. Zelnick indicated there are no plans to slash jobs near term and it would take 3-6 months for the new board even to develop a strategy -- issues that concern analysts including Michael Pachter of Wedbush Morgan Securities, who said Fri. “we are not optimistic that the changes made yesterday will have an immediate impact on Take-Two’s operations.” Shareholders, therefore, “are being asked to wait another 2 quarters, at a minimum, before they can expect to see initial results that the proposed turnaround is making progress,” he said. Pachter challenged the logic of naming Feder acting CEO. He “appears to have no meaningful experience” running a large company or “any practical experience” in the game industry, Pachter said.
Bank of Montreal (BMO) Capital Markets analyst Edward Williams had a more upbeat take, saying the publisher “has strong development studios and a solid portfolio of videogame brands” and he sees “significant opportunity to exploit the assets over time.” He predicted Take-Two’s Rockstar Games and 2K publishing units will “largely remain intact,” albeit perhaps with “a more formalized greenlight process” for games and “a reduced reliance on ‘one off’ licenses.” The new board will “sell or shut down underperforming and non- strategic assets, potentially including” Take-Two’s Jack-of- All-Games distribution business, its Joytech peripheral business and Global Star game publishing label, Williams said. Take-Two now largely is deemed a “one-trick pony” by many game industry observers, who cite its most popular -- albeit controversial -- franchise, Grand Theft Auto.
As planned, the new board ratified a contract making ZelnickMedia a Take-Two financial and management consultant. Shareholders approved a proposal to amend Take-Two’s incentive stock plan to raise the number of shares of common stock reserved for issuance under the plan by 2 million shares. Also approved was a proposal to ratify Ernst & Young’s appointment as Take-Two’s independent accounting firm for the current fiscal year, ending Oct. 31. Shareholders voted against a shareholder proposal requesting that the board compensation committee include “social responsibility,” along with corporate governance and financial criteria in setting executive compensation. Take-Two caught heavy flak in recent years over Grand Theft Auto’s graphic violence, as well as its characterizations of Haitians and others, deemed offensive. The worst blow came when the notorious “Hot Coffee” sexual content hidden in Grand Theft Auto: San Andreas came to light. That led to large losses at the company, which had to withdraw the game and reissue it minus sexual content, then cope with a wave of class action suits. Ex-CEO Ryan Brant recently pleaded guilty to felony charges of faking business records in an option backdating scam (CED Feb 15 p8).