HERB GREENBERG
Take-Two: If Icahn is selling...
Why would investors be trying to seize control of the company?
By Herb Greenberg, MarketWatch
Last Update: 6:33 AM ET Mar 12, 2007
This story ran over the weekend in the Wall Street Journal.
SAN DIEGO (MarketWatch) -- The bizarre tale of Take-Two Interactive Software gets more bizarre by the week, if not day. The latest twist came this past Wednesday, when a group of investors holding nearly half the company's shares, including hedge fund SAC Capital, suggested it wanted to hijack the board and replace top management.
Considering that Take-Two's chief executive, Paul Eibeler, was my MarketWatch column's Worst CEO of the Year for 2005, I'm not surprised.
But this isn't just any company that appears to be in need of new management and a turnaround: This is Take-Two (TTWO :
Take-Two Interactive Software
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TTWO20.27, +0.81, +4.2% ) , a company that has seen a steady stream of top-level executives and well-connected directors come and go; a steady stream of well-connected and well-known investors come and go; and a steady stream of controversy come and not go.
Best known for the crooks-beat-the-cops series of Grand Theft Auto games, Take-Two, ironically enough, has had its own share of scrapes with the law. Two years ago, while not admitting or denying anything, the company agreed to pay a slap-on-the-wrist fine in connection with Securities and Exchange Commission claims that it fudged its accounting several years earlier to make results look better than they really were. Among the charges, in not so many words, were claims that it sold product to itself.
Then, last year, Take-Two disclosed several times that it had received grand-jury subpoenas from the New York County district attorney regarding a smorgasbord of items, including acquisitions, partnering arrangements, earnings results, changes in auditors and activities of its directors. (But not to worry: the company says it hasn't been advised it is the focus of an investigation.) Last year, Take-Two's board launched an investigation of stock-options backdating, leading to a criminal conviction of founder and former CEO Ryan Brant, who pleaded guilty; he avoided jail by agreeing to help investigators.
In the past few months, three directors have departed, the most notable being independent film producer Steven Tisch, best known for "Forest Gump." His addition to the board in 2002 was hailed for his ability to bring "a wealth of valuable experience and relationship in the entertainment industry." He offered no explanation for his departure and couldn't be reached to comment.
Seemingly lost in the shuffle: The sad state of Take-Two's business. The loss-plagued company, which in March 2006 said it expected a "return of profitability" by last year's fourth quarter -- it didn't succeed -- is now saying profits won't come until this year's fourth quarter. (Ground Hog Day, anyone?) The year as a whole, meanwhile, will be "break-even," which is 49 cents a share less than analysts were expecting two months ago, according to Thomson Financial -- and $1.65 a share less than they were expecting a year ago.
The year's forecast includes the expected October rollout of the latest version of Grand Theft Auto. "Take-Two management has proven itself to be exceedingly poor at forecasting results," Wedbush Morgan Securities analyst Michael Pachter, who rates Take-Two a "sell," wrote to clients. A spokesman didn't respond to my inquiry about the firm's forecasting abilities but did refer me to a prior press release about coming games.
There's no guarantee that new management will do a better job, or that it will like what it sees, if it gets a chance to dig deeper into the numbers and business. Furthermore, investors pushing for change don't have a history as activists. Noticeably absent among them is the current ace of activists, Carl Icahn, whose ownership of the stock helped catapult it higher last year. He has since reportedly sold or is in the process of selling his stake. Could it be that his research suggests this is one company that all of the activists in the world can't truly help? He didn't respond to my inquiry. Maybe he figured actions speak louder than words.
* * *
Market Mania: In the wake of the market's recent unrest, I was wondering why investors always seem to get so blindsided by upheavals in individual stocks and the market? Doug Wakefield, of financial-planning firm Best Minds Inc. in Dallas, thinks he knows. After years of studying the research and writings of some of the world's smartest investors, he concludes: "The reason that we don't believe the markets will crash, is because we do not want to. Simply put, we enjoy the illusion of wealth that easy credit creates. And, who wouldn't? With easy credit, there's no need to work for years and save, no need for politicians to ever say no, and no need to wait or do without. We like the status quo and are resistant to change. We don't want to look below the surface and examine the foundation of our markets and economies. If the system experiences a problem, liquidity is always the answer. If we encounter a slowdown, just add more liquidity: After all, it's been working for years. And the longer this arrangement persists, the more this belief is reinforced." Amen. End of Story
Herb Greenberg is senior columnist for MarketWatch and contributor to CNBC television based in San Diego. He does not own stocks (except for shares of his employer), and he does not sell individual stocks short or invest in hedge funds.
