In his latest note to investors, Janco Partners analyst Mike Hickey says Take-Two's reorganized focus on a narrow portfolio of strong franchises, could be the new board's way of making the company more attractive for a potential buyout.
The analysis follows the publisher's recent reorganization announcement, in which it said it would consolidate and realign a number of its departments and studios from marketing and sales to its 2K and 2K Sports labels.
Take-Two representative Ed Nebb explained to Gamasutra that the shifts concerned "relocating the NY office of 2K to the West Coast, consolidating some positions in the International division, and re-aligning reporting for certain studio administrative functions."
Though Take-Two would not announce the number of positions involved in the reorganization Nebb told Gamasutra, "With respect to the 2K NY office, the affected positions were in management, marketing and business development, not creative."
"It's important to note that the goal of the reorganization is not merely cost-efficiency, but about improving performance to allow Take-Two to do what it does best - create great, best-selling games," said Nebb.
In his investor note, Janco's Mike Hickey said, "It appears the Company is stripping out much of the product diversification effort implemented by prior management and is instead focusing on hit franchises."
He continued, "While a smaller but more powerful list of games for release has the opportunity to drive financial performance to higher levels, it also creates periods of operational volatility as their current franchise portfolio limits consistent releases."
Hickey said that the new narrower focus "could be an exceedingly powerful asset for a competitive 3rd party developer like Electronic Arts or a large multi-media company like Viacom. While a stripped down operational model would naturally increase their earnings volatility, that earnings volatility could be smoothed out if it was included within a larger portfolio of assets from an acquiring Company."
Hickey also said that of the 2,100 total employees and 1,300 developers, Janco expects Take-Two "to reduce their total employee head count by 5 to 15%, which would represent 105 to 315 employees."
Finally, on the potential sale of its "non-core, unprofitable, or marginal" business units, such as its Jack of All Games distribution and Joytech peripheral divisions, Hickey said Janco expects "management would likely settle for a bid in the range of $75 to $100 million" for Jack of All Games.
