Shareholder Sues Take Two Over EA Offer & Zelnick’s Sweetened Deal
While EA’s bid to acquire Grand Theft Auto publisher Take Two Interactive appears stalled, a Take Two shareholder has sued the company.
As reported by the Los Angeles Times, T2 stock owner Patrick Solomon alleges that Executive Chairman Strauss Zelnick and his team kept EA’s offer a secret from shareholders while they arranged a sweeter deal for themselves:
The suit spotlights the board’s decision Feb. 15 to increase ZelnickMedia’s management fees and bonuses to what it calls “an exorbitant” $16.5 million, from $3.8 million, in the event the company were sold. The suit also questions a provision… that would grant ZelnickMedia 780,000 shares if the company were sold before March 31, 2009, and 1.5 million shares if it were sold after that date. At $26 a share, that stock grant would be worth $20 million to $39 million, depending on when the transaction closed…
The controversy over compensation has threatened to tarnish a squeaky clean image that Zelnick has cultivated since his days as a music industry executive.
“If Strauss Zelnick keeps telling people he’s a Boy Scout, someone should ask him what merit badge he expects to get for this,” said Jeff Brown, a spokesman for Redwood City, Calif.-based EA.
March 11th, 2008 at 8:27 am
Ouch! Fairly harsh if true…
March 11th, 2008 at 8:28 am
So an EA spokesperson talks down on the man sticking a monkeywrench into EA’s next aquisition. Suprise! I wonder if EA is helping fund this lawsuit.
Remember, kids, this isn’t about Rockstar, it’s about EA wanting a real monopoly over football (sports) games, instead of the almost-monopoly they have now.
March 11th, 2008 at 8:32 am
So, could this really be JT’s mystery client?
March 11th, 2008 at 8:32 am
Can’t Rockstar simply find a new publisher in the event Take Two is purchased by EA?
March 11th, 2008 at 8:36 am
@Black Manta - Good point. I wonder… also have a question for anyone with legal knowledge: Is anything listed in the article actually illegal? I mean, I understand that the shareholders would need to vote on such an issue, but surely that vote need only take place at a later date…
I really don’t know what the law is regarding these sorts of things, but am curious…
March 11th, 2008 at 8:37 am
I actually suspect this isn’t about a Zelnick get-rich-quick scheme. He’s trying to deter the hostile takeover through various tricky stock manipulations in order to drive the price of acquisition up.
March 11th, 2008 at 8:37 am
@Anthony - I believe that Take Two own Rock*
March 11th, 2008 at 8:39 am
@Anon: I was actually wondering the same thing, whether anything he did is illegal or rendering Zelnick liable for failing in his duties as Chairman. I think some of it is understandable in light of the takeover bid, and furthermore if stockholders disapprove of the way he’s managing the company I think that a shareholder revolt (much like the one that ousted Paul Eibeler) is the easier remedy.
March 11th, 2008 at 8:42 am
What IS it with you Americans and suing everyone??!!
March 11th, 2008 at 9:18 am
Anyone taking odds Jack-of-the-hill-people emails the guy and tries in an effort to merge suits and become voltron?
March 11th, 2008 at 9:28 am
@Anthony
As Anon said, Rockstar is owned by Take Two. They would have to purchase the Rockstar brand back from Take Two or EA if the merger happened. Either way I highly doubt it would happen.
March 11th, 2008 at 9:32 am
I was also wondering if this is John Bruce’s mystery client. But I highly doubt it. Someone with enough clout to be able to sue Take Two would hoepfully not be dumb enough to hire John Bruce as an attorney.
March 11th, 2008 at 9:44 am
How could any not expect a former suit “musicman” not to cut a deal under the rug that did not directly benefit himself to an extreme degree? After all payola is the mantra of that industry and fiduciary responsibility is strictly a personal obligation anymore.
March 11th, 2008 at 9:49 am
Jack “lamprey” Thompson will be on this case.
March 11th, 2008 at 10:37 am
“in the event the company were sold”
Isn’t that incentive to sell, not tell EA to stuff it and fight every attempt at hostile takeovers?
I’m confused.
March 11th, 2008 at 10:43 am
@ Jabrwock
You don’t understand the story. T2 told EA to stuff it until May when GTA IV was released. They needed toime to ensure that they had lined their pockets before the sale. They needed to finalize the these measures to throw a bunch of money at Zelnick and otehr board members before considering selling the company.
In other words, they want to sell, but only when it is profitable for them.
March 11th, 2008 at 10:44 am
If this Patrick Solomon has any real stake in T2 then this is someone who has far more money then brains. Maybe a daytrader or something… but not someone who actually knows how M&A work and didn’t pay much attention during the 80s.
Poison Pill provisions are a perfectly legit way to defend a takeover, not some magical ‘let’s make ourselves rich!’ mechanism. In fact if it looked like EA were going to go for it they would probably up it farther.
March 11th, 2008 at 11:00 am
What I don’t understand is the big companies dumping Take2 stock right before the relese of GTAIV.
If GTAIV is a big take off game, and it should be, then the Take2 stock should soar and the comapny will be worth a lot more then it is today. What EA was trying to do is buy the company while it was cheap then rake in the rewards. That’s just good business sense. However, I frown unpon these mudslinging tactics where the CEO’s are insulting eachother and trying to make the others look dirty.
Basically, what it comes down to is EA wants to buy it befre GTAIV and T2 doesn’t want to sell until after GTAIV.
March 11th, 2008 at 11:19 am
@Black Manta
Doubt it, I think JT said it was another game developer. Won’t put it past him ot latch onto this case though.
March 11th, 2008 at 11:33 am
@EZK
“They needed toime to ensure that they had lined their pockets before the sale. They needed to finalize the these measures to throw a bunch of money at Zelnick and otehr board members before considering selling the company.”
And everyone else’s. Severance packages for all employees went up too, in case EA decided to “clean house” after the takeover. Management (not including Zelnick et al) would get 1.5 times their salary (for 18 months) for being fired without cause, employees full salary for 6 months.
Neeneko summed it up nicely. Poison pill provisions. Make T2 a really expensive bullet to bite, should it manage to accomplish a hostile takeover.
“You can have the company, but then you’ll have to pay out the CEO millions.”
Makes EA’s shareholders pause for a second to think about it. If they desperately want T2, they’ll have to pay up.
The timing is more anti-EA too. They clearly want T2 before GTAIV comes out, and the shares deal means Zelnick gets more if he holds off selling until one month after the release of GTAIV, at which point the stock price for T2 will be much higher (likely why EA is trying to buy it now…) Which will be better for shareholders all around.
March 11th, 2008 at 11:34 am
This sounds like an influenced move by EA to try and get T2’s board to oust Zelnick so EA can then aquire the company. It’s the same type of tactic Microsoft is using in their bid for Yahoo.
The problem is this won’t fly. On the surface it looks legit, but when you take into account that GTA has ALWAYS been T2’s best seller he is doing what’s best for the company and it’s shareholders. The major point behind this suit is a shareholder is claiming he’s not getting the same deal which isn’t true. Sure, Zelnick will get more because the stock will go up with the release of GTA IV, but so will this guy who’s complaining about the deal.
I don’t see where the shareholder has a lot of ground to stand on. Sure Zelnick gets less if EA gets T2 now, but so does he.
March 11th, 2008 at 11:37 am
For some reason, lamphrey or leech wouldn’t accurately describe JT if he tried to attach himself to the case. Perhaps a Wraith from Stargate: Atlantis? Think about it, he sucks the life out of anyone he attaches himself to and leaves only a withered husk behind. Problem is that the Wraith are menacing, while JT is a buffoon with delusions of grandeur. Hmmm… perhaps inspector Clouseau if he became a lawyer? Problem is that even Clousseau could solve a case. Hmm. JT seems to be in his own special place of “epic fail”.
March 11th, 2008 at 11:46 am
@ Canary Wundaboy
Its very easy to sue in America, and those filthy lawyers made sure you can’t do anything without them. Also, there are a lot of lazy/weak people who don’t want to take responisbility for themselves or the ups and downs of life.
March 11th, 2008 at 12:00 pm
@ GryphonOsiris, you’re being too kind. For the wraith to feed they must get in physical contact with a human being.
Might explain all the whithered squirrels though.
March 11th, 2008 at 2:32 pm
@Mogbert
I imagine some companies might dump the stock in fear of over speculation. The stock prices begin to rise as the game release date nears, but if they don’t hit their projected sales mark then it could level off or fall and if you’re trying to make money from the quick turn around of stock then it isn’t a stable bet.
March 11th, 2008 at 2:40 pm
@ Canary
Remember GTA3?
“This is America! You can sue just about anyone, for anything, and probably win!”
Hmm maybe Take Two isn’t trying to get money, maybe theyre trying to get it so high EA says “Screw it”
March 11th, 2008 at 2:41 pm
if a shareholder is suing taketwo for not accepting EA’s offer that means he is not a gamer.
EA’s “80’s Atari” business model of putting out tons of crap games because there are few if any alternatives will put the industry in a huge slum if they are able to continue eating up the smaller competitors.
March 11th, 2008 at 4:06 pm
wow, i have absolutley no idea who the share holder is. hey Jack.
March 11th, 2008 at 4:08 pm
never mind, didn’t read the whole thing.
March 11th, 2008 at 4:49 pm
Zero, it does help for the lawyers that the majority of politicians in office were lawyers as well, or law students at one point. They scratch each others back, ya know.
March 11th, 2008 at 5:21 pm
This isn’t Jack’s “client,” because if this is what Jack was going to have them sue over there would be no need to warn EA as Ea would not have anything to lose from the suit if it were about this.
March 11th, 2008 at 8:47 pm
Also if this guy was jacks client, do you think he’d get a word in edgewise between jack saying “LOOK AT ME! I’M IMPORTANT! LOOK AT ME!!!!”
March 11th, 2008 at 8:53 pm
Since when do the terms ’squeaky clean’ and ‘music industry exec’ belong in the same sentence?
March 11th, 2008 at 10:09 pm
Well it could mean “the mirror is squeaky clean now I’ve snorted all the cocaine off it”. Not that I’m implying anything…
March 12th, 2008 at 12:41 pm
Take Two should take the deal. EA offered $26/share. The last time this stock was even close to this was back in ‘05 when it traded at $28/share. This company is a one trick pony that does not make money. You really think GTA revs will push this stock higher? Who else would come in and make a higher offer? Mgt must beleive that they can either create greater value in the company or that they will get a higher offer from EA or some other company. Ballsy move. I don’t see it panning out….
March 13th, 2008 at 9:48 am
The last time the stock was close was in 2005 at $28/Share you say? You mean about the time sales figures for San Andres started to pour in from the release of San Andres on Windows/Xbox coupled with Playstation 2 sales? (You know, just guessing here.)
Yup, they must be fools thinking Grand Theft Auto IV will do the same thing for them…