WSJ: Take-Two Holders Succeed in Board Coup

From today's WSJ. A story about successful shareholder advocacy.

By ANGELA PRUITT and KAJA WHITEHOUSE
March 30, 2007; Page A3

The News: Take-Two Interactive Software shareholders removed the board of the embattled videogame maker and replaced it with six new directors. Strauss Zelnick, founder of ZelnickMedia, was nominated as the new chairman.

Background: The upheaval follows struggles by the maker of "Grand Theft Auto" videogames to rebound from a stock-options scandal and return to profitability. Earlier this year, Former Chairman and Chief Executive Ryan Brant pleaded guilty to charges in connection with an options-backdating scheme.

What's Next: The new board and acting CEO plan to spend the next several months understanding the company's financials.

A group of Take-Two Interactive Software Inc. shareholders owning 46.1% of the videogame maker's stock succeeded in removing the board and replacing it with six new directors.

The newly elected board already nominated as chairman Strauss Zelnick, founder of media management and investment firm ZelnickMedia. The board also named Benjamin Feder as acting chief executive, succeeding former CEO Paul Eibeler, and increased the number of board seats to seven from six in order to reappoint the just-ousted Grover Brown as the seventh director.

The board coup is the handiwork of four institutional shareholders, a class of investors not known for activist investing, or agitating for change at companies to boost the stock price. The group consists of mutual-fund firm OppenheimerFunds Inc., D.E. Shaw Valence Portfolios LLC, Tudor Investment Corp. and hedge fund S.A.C. Capital.

The upheaval comes as the maker of "Grand Theft Auto" videogames struggles to rebound from a stock-options scandal and return its operations to profitability. Earlier this year, former Chairman and Chief Executive Ryan Brant pleaded guilty to charges in connection with an options-backdating scheme.

Mr. Zelnick said in a news conference after the election results were announced that the new board and CEO plan to spend the next several months getting their arms around the financials of the company. It's important that the company have "pristine financial" conditions, he said.

The new team is also evaluating the chief financial officer position, but the current finance chief, Karl Winter, is still with the company. Mr. Zelnick said he believes that "the creative talent will remain in place."

Mr. Zelnick also dismissed suggestions that the new board might seek to sell the company. "There's not a vision for an exit," he said.

In an unusual move, the shareholders bypassed the proxy process in their takeover attempt, turning instead to a rarely used process by which shareholders attend an annual meeting and, once there, motion for actions that require votes, such as the election of new directors.

The meeting ended around 4:30 p.m. EDT, but the results weren't announced until almost 8 p.m. because the company needed time to tabulate the votes. To verify the legitimacy of hundreds of ballots cast at the actual meeting -- rather than through proxies mailed ahead of time -- the company required anyone seeking admittance to provide proof of stock ownership.

The shareholder group acted quickly to make its intentions known, with a representative of Oppenheimer moving to motion within the first ten minutes for the competing slate of directors, who were also present at the meeting. A representative at D.E. Shaw seconded the motion. The company approved it, and ballots were quickly handed out to people who wanted to vote for the dissidents' candidates.

To win, the shareholders only needed one vote more than management, an effort boosted by widespread recommendations to withhold votes for some of management's sitting directors, mainly over concerns of backdating.

Fewer than 100 shareholders were admitted to the meeting, which took place at New York's Hotel Gansevoort. The meeting was brief and orderly, lasting only a half hour. It was presided over by Take-Two general counsel Seth Krauss, who warned in his introductory remarks that "derogatory references" and "disruptive" behavior could result in removal from the meeting.

The new board consists of Michael Dornemann, John Levy, Jon Moses, Michael James Sheresky, and Messrs. Zelnick, Feder and Brown.

Mr. Zelnick and his partners at ZelnickMedia have led several operational turnarounds in the media business, including Columbia Music Entertainment of Japan and Time-Life, the company said in a news release. Prior to founding ZelnickMedia in 2001, Mr. Zelnick held a number of media industry positions, including president and chief executive of BMG Entertainment and president and chief operating officer of 20th Century Fox.

Write to Angela Pruitt at angela.pruitt@dowjones.com and Kaja Whitehouse at kaja.whitehouse@dowjones.com

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