Following the late revelation yesterday that investor Carl Icahn increased his stake in publisher Take-Two to 11.3%, analysts are reacting to the news. Wedbush Morgan analyst Michael Pachter noted that Icahn previously built up shares in order to sell them at a profit, but this time he may be doing so in order to influence top management to sell the company.
"This is the third time we can remember that Mr. Icahn has taken a substantial position in Take-Two. The first was in early 2007, prior to the shareholder revolt that replaced then management with the current leadership team led by Strauss Zelnick. Mr. Icahn was not part of the revolt, and sold his shares at a profit when they ran up in mid-2007. The second investment was around the time of the delay of Grand Theft Auto IV in late 2007, when Take-Two shares dropped, and again, Mr. Icahn sold at a profit a few months later," Pachter detailed.
"We believe that Mr. Icahn intends to force the company to consider a sale, and note that he has a history with Mr. Zelnick. When Mr. Icahn became Blockbuster’s biggest shareholder in 2004, he sought three board seats at that company, and nominated himself and Mr. Zelnick for two of them. Both remain on the Blockbuster board, and we are confident that they know each other well. We think that Mr. Icahn’s 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. Icahn’s suggestions about how to unlock value."
That said, Pachter isn't convinced Icahn's influence will be felt immediately. Take-Two has to change its ways first, to make itself more attractive to a potential suitor. "Take-Two continues to take too long to release games between iterations, leading its research and development expenditures to grow larger than is customary in the industry. As a result, Take-Two’s earnings are pressured, and it requires a very high revenue threshold to break even. It is not clear to us that suggestions from Mr. Icahn will change the company’s operations radically, and the slow pace of development remains an impediment to a potential acquirer," Pachter stated.
Broadpoint AmTech analyst Ben Schachter doesn't agree that Icahn is attempting to force Take-Two into a sale. He commented, "...the more traditional notions of Icahn trying to force a sale, push a massive re-organization, or drive some form of financial engineering do not really make much sense in this case, as the current management team is more than open to such suggestions without having an activist push it in those directions (the current management team is basically comprised of activist shareholders). The bottom line is that we do not know Icahn’s intentions, but we can be certain that the never-boring story that is TTWO will once again draw interminable speculation and conjecture."
