In failing to accept EA's buyout offer, has Take-Two become the new Yahoo?
Is Strauss Zelnick's position as chairman in jeopardy?
Readers may recall that Yahoo spurned a series of acquisition offers by Microsoft over a five month period earlier this year. If that sounds familiar, Take-Two spurned several EA tender offers over roughly the same time frame.
Microsoft's' interest in Yahoo drove the search firm's stock higher, to the 30 range; Yahoo ultimately stunned Wall Street by refusing MS' 33 per share bid. EA's interest in T2 did the same, pushing TTWO at times into the 26+ range. EA's 25.74 offer remained on the table for months, ridiculed by T2 as undervaluing the GTA publisher.
When MS became frustrated and pulled out, Yahoo stock tanked. Today it wil open at 18.27. On Sunday's news that EA was bailing, T2 plunged 5 points yesterday. Admittedly, some of that might have been helped along by the most brutal day on Wall Street since the 9/11 aftermath.
So why would Zelnick's job be on the line?
It probably isn't - yet. But T2 investors who saw the value of their shares jump nearly ten points on EA's offer have now given all of those paper profits back with EA's withdrawal. The stock is back where it started. Moreover, a sweetheart deal that would have enriched Zelnick and his management team in the event of an acquisition never sat well with EA. It actually caused EA to lower its tender offer by about 1/4 point and caused bad blood between EA and T2 execs from the get-go.
Now that EA is gone, Zelnick faces some challenges. GTA IV profits are slowing. The Houser brothers will become free agents in February. If they walk, T2 becomes less of a company than it is now. If they stay, T2 will have to pay them a bigger slice of the profits.
We asked Wedbush-Morgan analyst Michael Pachter whether Zelnick might be in jeopardy. His thoughts:
Jeopardy is a strong word. I think that shareholders may be upset that he didn't accept the $26 offer when he had it in hand. He has some time to demonstrate that there are other interested parties; if he can produce them, I don't think he is in trouble at all. If he can't, I think that the number of unhappy shareholders will increase.
Financial website The Motley Fool does not see T2 as the new Yahoo, however:
This isn't Microhoo revisited. Take-Two's fundamentals have actually improved since EA went public with its unsolicited offer for Take-Two at $25.74 a share. Grand Theft Auto IV broke records. The BioShock franchise has a sequel on the way, as well as Pirates of the Caribbean director Gore Verbinski on board to give the property the Hollywood theatrical treatment.
This is why I believe that Take-Two will bounce back from this a lot quicker than Yahoo! did after its prolonged courtship with Microsoft came up empty... Take-Two shareholders can't blame executives, because those investors perpetually turned down EA's tender offers. The company can also point to its improving fundamentals.