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Take-Two Shareholders Upset Over EA Rejection

By Chris Bennett, Tudor Carsten, Michael R. Coburn, Sarah Dale-Harris, Pablo Guzman, Danielle (Dani) Lemon, Chris Metcalfe and David Spratley

Take-Two is facing some shareholder discontent over its handling of EA's recent $1.9 billion buyout offer. The announcement today that two of the publisher's largest shareholders have cut back their stakes in the company follows news of a shareholder lawsuit for refusing to explore EA's offer.

Oppenheimer Funds, Take-Two's biggest shareholder, cut its holdings from 23 percent to 11.5 percent while FMR LLC, the second-largest owner of Take-Two shares, reduced its stake from 14.7 percent to 2.75 percent. Despite Take-Two's position that EA's offer undervalues the company, some believe that this may damage Take-Two's chances of holding out for a better deal from EA.

According to the New York Times, the lawsuit accuses Take-Two management of breaches of fiduciary duty, including a failure to maximize shareholder value, stemming from the rejection of the offer and the board's decision to increase management fees and bonuses fourfold in the event the company was sold. In a statement, the company said: "We believe that the claims lack merit, and intend to defend vigorously against them."

At the time of the EA bid, Take-Two Chairman Strauss Zelnick said that the company would not entertain offers until the launch of Grand Theft Auto IV on April 29th. However, in addition to increasing management compensation in the event of takeover, Take-Two has already set up a new severance plan for its non-executive employees in the event of layoffs.

For more coverage, see LA Times, NY Times, and MarketWatch.

Submitted by Michael Mjanes

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Full post as published by Video Game Law Blog on March 11, 2008 (boomark / email).