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Activist Investor Icahn Boosts Take-Two Stake

Activist Investor Icahn Boosts Take-Two Stake

December 18, 2009 | By Leigh Alexander

December 18, 2009 | By Leigh Alexander
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More: Console/PC

As Take-Two closes out its year with a 137.9 million net loss, activist investor Carl Icahn has boosted his stake in the Grand Theft Auto publisher to just over 11 percent.

Icahn's ownership of over 9 million shares -- $70.6 million worth -- is revealed as part of an SEC filing that notes he feels Take-Two's shares are "undervalued," and that he wants to "have conversations" with company management on issues it faces.

Icahn frequently takes significant stakes in struggling companies, and then presses management to make changes that would improve its share price. He's often vocal about how he thinks his investments should be managed -- his clash with Yahoo's board was widely-publicized, and he also has a similarly tense relationship with Lionsgate Entertainment.

"We believe that Mr. Icahn intends to force the company to consider a sale, and note that he has a history with Mr. Zelnick," says Wedbush analyst Michael Pachter.Icahn and Take-Two CEO Strauss Zelnick are acquainted; both are directors on Blockbuster's board thanks to Icahn's nominations as biggest stakeholder in that company.

"We are confident that they know each other well," adds Pachter. "We think that Mr. Icahns significant stake in Take-Two will allow him access to Mr. Zelnick, and we expect to see increased interest in the stock as management responds to Mr. Icahns suggestions about how to unlock value."

Icahn has been an investor in Take-Two since 2006, beginning with a small 1.1 percent share. At that time the move was interpreted as a potential grab for Take-Two's reins, but Icahn sold around half his stake at the beginning of 2007, in the same period that Take-Two former CEO Ryan Brant pled guilty to falsifying information in the company's stock backdating legal battle.

Although he purchased shares again in November 2007, this is his largest investment yet in Take-Two, a significant jump in his stake -- one which, according to the SEC filing, occurred largely over the past few weeks, as Take-Two cut forecasts and warned of losses.

Yesterday, at the close of its fiscal year, the company revealed its $137.9 million GAAP net loss on net revenues of $968.5 million for the year, down 37 percent year-over-year.

Take-Two's Zelnick assumed responsibility in 2007 for a company struggling with Brant's legal fallout and the 'Hot Coffee' scandal. Though it's resolved those legal woes, Zelnick's 2008 was occupied with fighting off Electronic Arts' hostile takeover.

Take-Two's share price stood in the area of $20 when Zelnick assumed leadership; EA bid $26.74 per share for the company, which sometimes traded even higher than that throughout 2008. The company's stock now stands at $8.25.

Analysts have questioned the company's ability to deliver profitability without a main Grand Theft Auto installment on the slate. Further, while Take-Two's strategy of prioritizing game quality over quantity and frequency have earned high critical acclaim for its games, analysts also often suggest the company would benefit from more timeliness and predictability.

"It is not clear to us that suggestions from Mr. Icahn will change the companys operations radically, and the slow pace of development remains an impediment to a potential acquirer," Pachter notes.

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