Stockholders oust Take-Two CEO
The video game maker faced an insurrection from shareholders that claimed the jobs of the chief executive and three directors.
Dissident shareholders voted in five new directors at Thursday's annual shareholders meeting.
The new board then promptly met and named as chairman Strauss Zelnick, a longtime media executive who has run BMG Entertainment, the global music label, and 20th Century Fox, the movie studio.
The board also voted to remove Take-Two's chief executive, Paul Eibeler, and announced an interim chief, Ben Feder, who is a partner in Zelnick's investment firm, ZelnickMedia. Feder had previously been a senior executive at the News Corporation.
Zelnick, who described Take-Two as "burdened by troubled corporate management," will take an active role in managing the business but leave the day-to-day operations to Feder. "This is not going to be an easy task. But I think, and Ben thinks, that there's an awful lot of good stuff going on at Take-Two."
For Take-Two Interactive, publisher of the wildly popular Grand Theft Auto game franchise, the boardroom upheaval is only the beginning of its problems. Despite the popular series, it has been unprofitable, losing $184.9 million in 2006 as its other products have failed to create the same buzz as its signature series.
The company also recently restated eight years of financial results in connection with the backdating of stock options, which is being investigated by the Manhattan district attorney and the Securities and Exchange Commission. The restatements totaled $42 million, the company said.
Take-Two's former chief executive, Ryan A. Brant, pleaded guilty last month to falsifying records and agreed to pay $7.3 million in penalties to the State of New York and the Securities and Exchange Commission.
One of the first orders of business for the new management, Zelnick said, will be to look at the company's financial accountability.
This month, a group of disgruntled investors led by OppenheimerFunds, Take-Two's largest shareholder, surprised the video gaming industry when it said that it would propose a slate of directors at the company's annual meeting. It also said it would ask for the authority to install a chief executive and chief financial officer.
Zelnick said last night that the financial officer, Karl H. Winters, would remain for the time being.
"We'll be looking into the situation with the financial department," said Zelnick, who added that the company needed to have "pristine" financials.
What ended with Thursday's vote started when ZelnickMedia approached Oppenheimer and Take-Two's other large shareholders, including the hedge fund D.E. Shaw and partners of SAC Capital, about a possible challenge to Eibeler and the board. After the investors went public with their plan, Eibeler began shopping Take-Two but was unable to find a suitable buyer.
Eibeler said Thursday after the shareholder meeting, but before he learned of his ouster, that Take-Two had run out of time. Under Nasdaq regulations, the company was required to hold its meeting by Tuesday, but received a short extension.
"We explored our options," Eibeler said, "and we didn't see them as happening in this time frame."
Eibeler was not available for comment after the results of the shareholder vote were announced; Zelnick said he phoned him personally to tell him of the board's decision.
This is not the first time Zelnick has taken control of a troubled company. When he was chief executive of BMG, he took over operational control of the company's faltering record club and immediately started cutting costs. Within a year, profits doubled.
After he formed ZelnickMedia in 2001 with four partners, he bought several distressed companies, including the retailer Lillian Vernon and Time Life, the publisher of music compilations and historical books and videos. ZelnickMedia turned both companies profitable and sold them.
It is also not the first time Zelnick has been involved in a shareholder revolt.
In 2005, he was part of the slate of directors elected to Blockbuster's board after the billionaire investor Carl C. Icahn led a proxy fight against the video store chain's chief executive. Zelnick remains on Blockbuster's board.
Last week, the Blockbuster chief executive, John F. Antioco, said he would step down at the end of the year, resolving a drawn-out conflict with the board over his bonus for last year.
Those ousted from the Take-Two board yesterday were Robert Flug, Mark Lewis and Oliver Grace Jr. They were succeeded by Michael Dornemann, Jon J. Moses and Michael James Sheresky.
The new board also includes Feder, Zelnick and two members of the previous board who had aligned themselves with the dissident investors. They are John Levy and Grover C. Brown.