Marketwatch Columnist: Did T2 Management Put Self-Interest Ahead of Shareholders?

Marketwatch Columnist: Did T2 Management Put Self-Interest Ahead of Shareholders?

February 25, 2008
Marketwatch columnist Herb Greenberg, often criticial of Take Two in the past, takes a cynical view of the Grand Theft Auto publisher's rejection of EA's acquisition offer:
Take-Two received a rich and serious offer from a substantial company. It didn’t disclose the offer, and hoped to keep it secret until at least after the annual meeting, when investors might have challenged the compensation package and attempts by the company to block the deal.

Then, in a public filing, Take-Two in effect threatened EA not to make the offer public by giving ZelnickMedia a chance to enrich itself, at the expense of shareholders, by granting restricted stock that will vest immediately if EA made the deal public...

That’s beyond absurd. Makes you wonder which shareholders the company puts first.

GP: A source at Take Two termed Greenberg's theory as "drivel."
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Comments

Submitted by Gray17 - February 25, 2008 at 10:18 pm -0500
@Father Time

Probably because it takes longer than a day for the stock to drop back down. Plus a combination of other things probably. It's unlikely EA is going to go away this easily, so the influence remains. Not to mention that EA valuing Take Two at $26 a share raises the stock's value a bit in and of itself.

It'll be interesting to see how this turns out. I'm hoping that EA gets firmly turned away and gives up. Bad things about EA aside, Zelnick seems to be doing a fair job of turning around the mess the previous crowd had made of TT. It's not like they're a small developer, they're a fair sized publisher. With decent management, they shouldn't need to be bought out to do well for themselves and their shareholders.
Submitted by E. Zachary Knight - February 25, 2008 at 10:05 am -0500
It is not surprising that the stock just rose. That usually happens when a high profile merger/buy out is in the ropes.

Once all the talk of buyouts quiet down the stock will drop again.
Submitted by L42yB - February 25, 2008 at 10:07 am -0500
@Belgarion89 - Good call indeed :) I just checked and stock prices are really going crazy! Up to 25.6 already!

Good call take two, at this rate your shares will be worth more than the offer before the end of the day :)
Submitted by Bloodharp - February 25, 2008 at 4:16 pm -0500
So where does this guy get his info? from what i understand, Take Two was outright with informing the public and did not try to cover it up. Some more info if you would about your sources please. Or is this all just speculation?
Submitted by TheEggplant - February 25, 2008 at 11:52 pm -0500
Bill Harris at Dubious Quality has a pretty good summation of the above article.

http://dubiousquality.blogspot.com/2008/02/skullduggery.html

While I have no love for EA, they killed Looking Glass and Westwood, I won't
cry any tears for Take-Two. Between the Bioshock DRM fiasco, which I'm still pissed about(yes I am that petty) to the their apparent corrupt management I don't believe you can make a case for them as champions of the game community.
Submitted by TheEggplant - February 26, 2008 at 9:52 pm -0500
@GrlGmr

Thanks for the clarification. I was going off of memory and got my "E" companies mixed up.

As for better business men, bring back Trip Hawkings! At least we know he cares about the gaming on the whole.
Submitted by Zelnick to Get Paid Big whether Take-Two is Acquired | Gamin - February 27, 2008 at 9:28 pm -0500
[...] via GamePolitics [...]
Submitted by kurisu7885 - February 25, 2008 at 8:54 am -0500
EA could have easily watered down Take Two's games, especially from Rockstar, killing sales and drivign down stock prices. So, I think Take Two did more good than harm.
Submitted by Skylar - February 25, 2008 at 8:59 am -0500
How could anyone find T2 refusing to be bought out by EA as a bad thing? By not letting EA turn T2 into a "progressively worse sequel" manufacturing machine, I think T2 is ABSOLUTELY looking out for its shareholders.

Eat it EA! You're not Activision!!!
Submitted by kurisu7885 - February 25, 2008 at 9:00 am -0500
@Skylar

Two ways. They're worried more about immediate profits instead of long term, and if you're hoping, praying that EA gets the company so any non favorite franchises get ruined
Submitted by Benji - February 25, 2008 at 9:10 am -0500
This guy's complain that "Take-Two in effect threatened EA not to make the offer public by giving ZelnickMedia a chance to enrich itself, at the expense of shareholders, by granting restricted stock that will vest immediately if EA made the deal public…" - perhaps someone can correct me, but this sounds like the stock agreement has a poison pill provision. For those who don't know, such a provision allows for the board to grant a large number of new shares in order to thwart a hostile takeover. Suddenly EA has to pay a lot more money to buy a lot of these new shares if they want to control TT. And poison pills are not all that uncommon - they're common enough that there's a term for it. So TT having one shouldn't be all that peculiar. So, yes, I'm also going with 'drivel' on this one.
Submitted by Kaiju - February 25, 2008 at 9:32 am -0500
really, how long is it going to be before EA is considered a monopoly? If they aquired T2 and therefor where the only Sports Game business around...would that not constitute a monopoly?
Submitted by chuma - February 25, 2008 at 9:35 am -0500
Quoted from the letter from EA to T2

"We do not intend to make this letter public and our offer will automatically terminate and be withdrawn in its entirety if any portion of this letter, or the existence of discussions between EA and Take-Two relating to a possible business combination, are disclosed to any person other than the directors and officers of Take-Two and its legal and financial advisors."

So T2 merely complied with the requests of EA who have since gone back on their word and even published a website with their hopes to buy out T2. Obviously Greenberg didn't do his research...
Submitted by Belgarion89 - February 25, 2008 at 9:36 am -0500
T2's stock price just rose 46%, now up to $25.45. Considering EA was offering $25 even, I'd say they made a good call.
Submitted by Chalts - February 25, 2008 at 10:01 am -0500
Yeah, I'd say Take Two did the right thing. Even if the money was a good offer (and given that Take Two's stock price just rose, probably not) I don't think selling out would help them creatively.

And I'm almost certain EA doesn't want to deal with Jack Thompson every day.
Submitted by cullarn - February 25, 2008 at 10:04 am -0500
in todays lesson we learn that stocks go up (allow me to explain see when gta 4 comes out tt will make LOTS of money which will cause their stock to SOAR)
Submitted by L42yB - February 25, 2008 at 10:08 am -0500
Also, the fact that the share prices have gone up so much so quickly kinda makes this guys point completely invalid...

I'm sure the shareholders are very happy right now :)
Submitted by brokenscope - February 25, 2008 at 10:15 am -0500
They simply believe that take 2 will be worth far more than that after grand theft auto 4 goes on sale.
Submitted by lumi - February 25, 2008 at 10:21 am -0500
They simply believe that take 2 will be worth far more than that after grand theft auto 4 goes on sale.

This here.

I'm curious as to how high they expect it to go after GTAIV. I'm anxious to find out how high it does go.
Submitted by L42yB - February 25, 2008 at 10:24 am -0500
They simply believe that take 2 will be worth far more than that after grand theft auto 4 goes on sale.

It's already worth more... check the share price.
Submitted by Kyle J - February 25, 2008 at 10:31 am -0500
This entire deal is just EA trying to make a quick and easy profit. EA knows that TakeTwo's stock is going to EXPLODE after GTA IV comes out. EA was paying what would be a good price today so they could make a metric ton of money after GTA IV is released. Here's the deal though: why should TakeTwo let EA get in on all the GTA IV money when TakeTwo has done all the work?

On a personal note a company that doesn't let itself be bought out by EA just jumped up a notch in my book. Just say no to a company that ruins developers.
Submitted by Overcast - February 25, 2008 at 10:36 am -0500
The T2 shareholders need to be aware that if EA does acquire T2, that the whole reason - GTA - would suddenly become just another 'EA game' - complete with 32 expansion packs and 32% (or more) less interested customers.
Submitted by Sujet - February 25, 2008 at 10:39 am -0500
EA ruins games, not accepting the offer was the best thing for everyone except the one-sequel-a-year company EA where every game made this year is exactly like one made last year.
Submitted by kurisu7885 - February 25, 2008 at 10:45 am -0500
EA may as well scratch art from their title. Art implies creativity, EA has none.
Submitted by Kaiju - February 25, 2008 at 10:55 am -0500
truly trying to buy a company right as a massive game is about to be realised is lame. I had to laugh at all the talk EA did during the Mass Effect Controversey "The hard working employees who created our game" what work did EA do except buy em' at the last minute to get that fat Mass Effect cash.
Submitted by Tristram - February 25, 2008 at 10:56 am -0500
I was gonna ask if EA wasn't famous for sucking, but it looks like everyone here already has that covered. Oh, I did it anyway.
Submitted by Saphrone Seidel - February 25, 2008 at 10:56 am -0500
T2 did a very good thing, by not pressuring to EA, it has given a clear signal to EA, that you can't buy eyerything. If T2 were to become an asset of Ea, then they would have little to no competition in the sports genre, and if there is one genre that need more innovation, it's the sports area.
Submitted by Tristram - February 25, 2008 at 10:59 am -0500
Just a follow up on my last comment: what was the last successful game EA made?
Submitted by L42yB - February 25, 2008 at 11:31 am -0500
@ Tristram - Published or made? There is a big difference... As far as "made" goes, I'd say Fight Night Round 3 was the most recent one that I really liked. As far as published goes, they most recently did Mass Effect... so the definitely bring out some quality games.

However, having said all that I am inclined to point out what I said in my last two posts:

TAKE TWO'S SHARE PRICE IS ALREADY WORTH MORE THAN $25!

So you can stop all the speculation. That deal is dead in the water now that the share price has climbed so steeply.

So no Take Two for EA :)
Submitted by L42yB - February 25, 2008 at 11:37 am -0500
Ooh, to update. Take Two's share price is, infact, worth more than $26 :)

All good, keep on climbing...
Submitted by kurisu7885 - February 25, 2008 at 11:37 am -0500
@L42yB

I typically say EAdoes a lot right, but they do a whole hell of a lot worse.
Submitted by Canary Wundaboy - February 25, 2008 at 11:58 am -0500
I hope to god Take Two's shareholders tell EA to go to hell.
Submitted by DeusPayne - February 25, 2008 at 12:41 pm -0500
"There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today."

Well... he was right.... he'll have to dish out a WAY higher premium to entertain another offer.
Submitted by Pixelantes Anonymous - February 25, 2008 at 12:44 pm -0500
I think what's absurd is the columnists' opinion.

Why would Take Two sell to EA two months ahead of the biggest game release of the year?
Submitted by Michael Papadopoulos - February 25, 2008 at 12:49 pm -0500
Take Two's shares are indeed more than $25 per share right now and that number keeps going up the closer we get to launch date for GTA IV. How much would T2 stand to lose should they accept the deal? Let's kick a little math. EA offers $2,000,000,000 for a complete takeover of T2, which works out to $25/share. That's 80,000,000 shares. At this very moment, T2's price per share works out to $26.40 (Source: GP Ticker), which leaves a remainder of $1.40 from the $25 that EA was offering per share. Doesn't seem like much of a lowball, but when you multiply that remainder by the amount of shares, it amounts to a whopping $112,000,000. That's a huge amount of money for any company to consider losing, regardless of size. I'd say that was a pretty good call on T2's part.

That being said, Jack Thompson will probably try and find some legal precedent to use against them in this whole thing. Maybe this time his motion will be submitted in the form of a pop-up book.
Submitted by Pixelantes Anonymous - February 25, 2008 at 12:50 pm -0500
@L42yB, the stock price is up BECAUSE of the buyout offer. If the offer doesn't materialize, the stock price will go back down to whatever it was on Friday. It's called arbitrage.

The stock price doesn't currently reflect the true open market price of Take Two. It reflects the premium price EA was willing to pay.

If the terms of the buyout change in any way, e.g. it's withdrawn completely, or the price changes, Take Two's stock price will IMMEDIATELY reflect this new value.
Submitted by Terrible Tom - February 25, 2008 at 1:05 pm -0500
Id rather EA not own T2. Overcommercialization will kill the innovative spirit of the game industry.
Submitted by Father Time - February 25, 2008 at 1:29 pm -0500
Anyone find it odd that is seems Take Two is making the morally right decision here?
Submitted by Pixelantes Anonymous - February 25, 2008 at 1:39 pm -0500
@Father Time, I don't think morality has anything to do with this. It's a business decision, and it was justified with business reasons as well. Zelnick could've gone and discussed the monopolistic EA behavior, if he wanted to, but he didn't. Instead he turned the offer down believing he'd get more money out of EA (or any other buyer) after GTA IV launch.
Submitted by BlackIce, Dragunov Marksman - February 25, 2008 at 1:48 pm -0500
@Father Time

Never look a gift horse in the mouth. GTA IV is fucked if EA get T2.
Submitted by Parallax Abstraction - February 25, 2008 at 3:26 pm -0500
@Father Time:

This is business. Morality doesn't enter into the minds of those running public companies.
Submitted by Nitherean - February 25, 2008 at 4:04 pm -0500
Funny how EA has replaced Microsoft as the Evil Empire. Just how many games, from studios, purchased by EA, went on to bomb in the next release? An what if, the studio, left on its own, produced the game, only to bomb? Would the two situations be the same from an objective viewpoint?

Someone give me a real list of game franchises, produced by an individual studio, then purchased by EA, to produce a crappy sequal?
Submitted by lorenzo - February 25, 2008 at 4:04 pm -0500
but hey we'd get to look forward GTA 2008/09/10/11/12/13 Winter special/13 Summer special/14 and 15
Submitted by Archgabe - February 25, 2008 at 4:10 pm -0500
EA= Electronic Amoeba

Does it not worry anyone else here that EA has been going on a buying frenzy of any popular competitor they can see?
Submitted by PHOENIXZERO - February 25, 2008 at 4:15 pm -0500
This guy on CNBC just pretty much said programmers aren't important, just the customers... I'm sure he means the same thing for everyone else involved as well.

Yeah, the guys responsible for building a franchise since GTAIII and doing much of the work (including the art guys) aren't important. *rolls eyes* GTA is dead if the key people that have been behind it since GTAIII are gone.
Submitted by ScorpSt - February 25, 2008 at 5:52 pm -0500
If EA gets T2, then that's it for quality. Take Two is just looking out for the gamers. I still can't believe that after EA says that it's strategy of buying up companies was a mistake, it's still trying to do it.
Submitted by GregoriusH - February 25, 2008 at 6:08 pm -0500
This doesn't have much to do with GTA I don't think, this is about EA Sports trying to get the monopoly.

However, I imagine T2 would try to hold out until after the GTAIV release, which will more than likely see a jump in share prices.
Submitted by kurisu7885 - February 25, 2008 at 7:27 pm -0500
I doubt Take Two will sell out even after GTA4 releases. Apparently Take Two knows what long term means.
Submitted by Belgarion89 - February 25, 2008 at 7:42 pm -0500
@ PheonixZero

Some other guy on CNBC just proved his utter lack of knowledge of the game market by talking about GTA 1 and 2.
Submitted by chadachada(123) - February 25, 2008 at 7:50 pm -0500
I don't know if this has been discussed already, but EA stocks started this week today 2 dollars lower than Friday....so I'm assuming the deal going public and T2 saying no hit EA stocks a little bit
Submitted by Minshi - February 25, 2008 at 7:58 pm -0500
"Someone give me a real list of game franchises, produced by an individual studio, then purchased by EA, to produce a crappy sequal?"

Ultima - Origin Systems - Ultima 8 and Ultima 9
Magic Carpet - Bullfrog - Magic Carpet 2

There is however, the cancellation of games, to consider. For example, the cancellation of at least 3 Wing Commander games, and 2 Ultima games. Others may know others from their favorite studio.

Keep in mind, Take-Two is rather large and may have studios you never considered with them. Firaxes Games (Cancellation/Rush of Civilization Revolution), as stated before the Irrational Games branch (BioShock, Freedom Force), Illusion (Hidden and Dangerous, and the Rush/Cancelation of Mafia 2), and of course as everyone stated, Rockstar, and Grand Theft Auto 4 (Probably released when it should, given closeness, maybe minor rush, Cancelation/Rush of La Noire, and the likely on-time release of Midnight Club)

As for hope of reviving franchise and licensing out IP for others to use, that is extremely unlikely, since companies like this only look at the greatest thing to make a sequel of, and reviving year old series would be seen as a waste.

Maybe a new CEO will fix the image of EA, but for now, he just has to deal with the fear and anger that the term 'EA Buyout' raises in gamers and programers.
Submitted by Vladimir - February 25, 2008 at 8:20 pm -0500
T2 decision was the best not just for the shareholders, but for everyone who appreciates quality games. Therefore, it was the morally correct decision and not just economically sound.
Submitted by Father Time - February 25, 2008 at 8:25 pm -0500
Can someone explain to me why the stock price is still very high?

After all take two did say they will not consider the offer unti GTA IV is released.
Submitted by Pixelantes Anonymous - February 25, 2008 at 11:00 pm -0500
The stock price is still up, because EA hasn't said anything about backing down. They're still saying they're acquiring Take Two one way or another. And Take Two has basically said: "Not now, let's talk again in two months".

In the absence of any other information investors (speculators?) are still expecting the buyout to proceed, if not now then after GTA IV has been released.

Even if the buyout had a tentative execution date 10 years from now, the valuation of $26 would still stick, because that's what investors would expect the stock to be worth until the buyout happens.
Submitted by Gabriel Celesta - February 26, 2008 at 1:10 am -0500
You know what, guys?

I don't really want to mention the name of Paul Eibeler... but I just did. So I was just wondering, if Eibeler were still the Take-Two CEO today, do you think he would've made the same decision, or would he have sold out?
Submitted by Aliasalpha - February 26, 2008 at 1:27 am -0500
The history of EA is a long & varied one, many older gamers such as myself (I came out the same year as space invaders but I've got more realistic graphics) remember the EA that was a powerhouse of innovation & fun in the 8/16bit days that brought us some of the best games released on the C64 & Amiga. The problem is that they, like most creativity focussed companies, have been taken over by businessmen. The businessmen know the management, they know how to run a project, balance the books and market things but the problem is that they don't understand what they manage, the end product is alien to them and therefore they can't really understand the qualitative difference between good & bad.

What was the saying from that old ad? "I'm not only the president of the hair club for men, I'm also a member". Thats the kind of suit they need running a game company, someone who may at least play a bit of the game even if only a quick 10 minute burst as part of a "here's what we're putting out next week" meeting.

The new head of EA seems like he MIGHT be a good guy though, he's admitted they screwed up a lot in the past, he objected to the outright slander that faux news was saying about mass effect and the general impression that I get from what I've read on him seems to give me the feeling he might not be useless and exclusively focussed on money at all costs.

Don't get me wrong, I'm sure we'll still get basically the same madden/fifa/nhl games every year because they DO sell (and how much more CAN you do with a sports game?) and I don't think for a second that they'll re-form Bullfrog studios so they can give us Populous/Syndicate III but I do hope that they'll respect the corporate culture & independance of the studios they absorb.

Instead of a merger I'd like to see them partner with developers, the devs can retain independance but still have the money & direction that a big company provides. It'd be good for the industry by retaining the diversity needed for innovatio and it'd be good for the big corps since they could avoid "OMFG monopoly!!!" claims.
Submitted by LightWarrior - February 26, 2008 at 7:24 am -0500
@Aliasalpha:

I agree. I read some articals just the other week that the CEO mentioned those mistakes as well as wanting to give some of their third party developers more room to do their work and mentioned stuff like Maxis and Activion....talked about how it was MAXIS who decided when Spore would be released...not the CEO or any other EA higher up.
Submitted by Ian Cooper - February 26, 2008 at 7:44 am -0500
In my view T2 is a second-rate game developer and being bought out by EA would be the best thing for gamers. I don't know how many T2 games I've bought that just wouldn't work out of the box and EA would add a bit of much-needed competence. Anyway it's not like EA is the only other sports game developer - what about Codemasters?
Submitted by GrlGmr - February 26, 2008 at 7:53 am -0500
@TheEggplant

Actually, Looking Glass was killed by Eidos, not EA. They shut down the studio after they lost so much money funding Ion Storm.
Submitted by L42yB - February 26, 2008 at 9:01 am -0500
@Ian Cooper:

U work for EA, right? I mean...

"T2 is a second-rate game developer " - Take Two are a *publisher*, not a developer. They own several developers tho... Some really good ones too...

"I don’t know how many T2 games I’ve bought that just wouldn’t work out of the box" -- Name some... I've bought quite a few and they all worked fine. Their Sports division has been a bit rubbish lately tho... but the games work fine, they're just rubbish ;) (much like most of EA's drivel)

"EA would add a bit of much-needed competence" -- I nearly fell out of my chair laughing at that one. Yeh, sure. Competance will be what EA brings to the table! lol
Submitted by Steve H - February 26, 2008 at 2:10 pm -0500
I hope you know the stock price of Take 2 is going not because GTA but because of EA's bid. Don’t be so naive to think the stock holders are super excited about GTA and not about the potential profit of a take over

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