Ever since Electronic Arts made public its intent to acquire Take-Two, newspapers, Web sites and blogs have been abuzz with reporting, rumor and speculation. Over the past couple of days, several business reporters have focused on the recently revised employment contract forTake-Two CEO Strauss Zelnick's ZelnickMedia, which is managing Take-Two. Even though Zelnick admitted to the Wall Street Journal that he originally hadn't planned to remain in the job more than six months, and even though there was significant interest in Take-Two by potential acquirers, ZelnickMedia now has an extra year tacked on to its management contract to go along with an increase in its annual mangement fee from $750,000 to $2.5 million. The Wall Street Journal described the agreement as follows:
Between those two offers [from EA to purhcase Take-Two], on Feb. 14, Take-Two's board of directors approved an amendment to an earlier agreement that more than tripled ZelnickMedia's cash compensation for providing financial and management consulting services to the company, boosting to $2.5 million a year from $750,000 the annual management fee it pays the firm. The board also boosted to $2.5 million from $750,000 the maximum annual bonus the firm is eligible to receive, according to a filing with securities regulators.
The board further granted ZelnickMedia 1.5 million Take-Two restricted shares, worth about $40 million at current prices, an award that still needs to be approved by shareholders at the company's annual meeting. Roughly half of that award will vest immediately if Take-Two is acquired in the near-term and various other conditions are met.
Having speculated on the ramifications of this news earlier in the week, we caught up with Electronic Arts vice president of corporate communications Jeff Brown to see if it had any way impacted EA's plans. Here's what he told us over email:
Why should we read anything more into ZelnickMedia's revised compensation package other than as a poison pill intended to make an attempted takeover more difficult?
We were surprised by the compensation package outlined in ZelnickMedia’s regulatory filings. Our offer does not include those shares. Beyond that, this is a matter between management and the shareholders.
Has the revelation of the ZelnickMedia-Take-Two agreement soured Electronic Arts' interest in acquiring the company?
Our offer stands. But we’ll wait and see how shareholders react to the compensation proposal. Yesterday, Zelnick protested to the Wall Street Journal: "I'm a boy scout, everyone knows that about me." Maybe his shareholders should ask which merit badge he expects to get for this.
What steps is EA taking next in its pursuit of Take-Two?
We’ve made two offers which were rejected by Take-Two’s board. On February 24, we put that offer back on the table and brought it to the attention of shareholders. The ball is now in Take-Two’s court.
Take-Two's stock will undoubtedly surge the closer it gets to the release of Grand Theft Auto IV. At the same time, EA CEO John Riccitiello's public statements have implied that EA's offer of $26 per share is its final offer. If an agreement cannot be reached before the stock price begins to spike in anticipation of GTA IV, will that effectively end EA's bid for Take-Two?
Our offer is for $26 per share. It’s hard to say what any stock will do in two month’s time. However we believe that shareholders and analysts are fully aware of the GTA IV launch and have built those assumptions into their model for valuing the stock. We wish them luck on the launch and we expect the game is going to be terrific.
How confident is EA management that its bid to acquire Take-Two will ultimately succeed?
We’re hopeful that we can still reach a timely and friendly agreement with Take-Two’s board.
Once the Activision Blizzard merger is complete, an AB flush with cash from continued World of Warcraft subscription revenues and Guitar Hero sales could make a play for Take-Two, putting AB in the sports business and giving it one of the industry's strongest IPs in Grand Theft Auto. How much is the timing of this acquisition bid--as well as EA's zeal to complete it--being driven by fear of AB?
The truth is, we really don’t spend much time thinking about them. Besides, yesterday their chairman told financial analysts that Take-Two really didn’t fit into their business model. I guess it doesn’t mean they’re not interested, but it would be kind of hard for him to untie that statement in the short term.
To see Take-Two's response, click here.
