The Takeover of Take-Two: The Contested Election

A company preoccupied, Take-Two apparently never saw it coming. The Company did not have a staggered board or, apparently, an advance notice bylaw (a bylaw that requires shareholders to submit director nominees sometime in advance of the meeting).

The Company filed its proxy statement for the annual meeting with the Commission on Feb. 28, 2006, nominating six directors (including two who had been recommended by outside counsel and presumably sat on the Special Committee).  The proxy statement is here.  The meeting was scheduled for March 23, less than 30 days later.  Ordinarily, such a short time frame would work in favor of incumbent management, giving insurgents little time to organize a proxy contest.  Insurgents would need to select candidates, draft a proxy statement, and incur the costs of distribution.  At the same time, management would have an opportunity to embarked on a campaign of their own, competing for any proxies.

The insurgents in Take-Two, however, entirely sidestepped the proxy process. There was no proxy statement, no distribution of proxy cards. Instead, the shareholders formed a group with greater than 5% of the voting shares of the company and, on March 7, filed a Schedule 13D. Item 4 of Schedule 13D requires disclosure of the purpose of any transaction, specifically any purpose that would involve a “change in the present board of directors”.  The Schedule 13Ds are here.

The result was to turn circumstances on its head. Now the short date worked against management. With the proxy rules cast aside, there was no need to file a proxy statement, no need to solicit proxies. With the Schedule 13D disclosing that the group held around 46% of Take-Two's shares, management had a short time frame to obtain sufficient proxies to outvote the group. With most of the large institutions already part of the group, there just wasn’t enough time.

The Schedule 13D filed by the insurgents on March 7 disclosed its intent to run six directors, to increase the size of the board to seven, and add another director. The group included the Oppenheimer Funds (24.5%), DE Shaw Valence Portfolios (9%), SAC Capital Advisors (3.7%), Sigma Capital Management (1.4%), CR Intrinsic Investors (2.7%), and Tudor Reporting Persons (4.8%). The list included a mutual fund and a number of hedge funds.  For a list of participants and the shares beneficially owned, see the table below.

Name of Reporting Person

Shared power to vote or to direct the vote

Shared power to dispose or to direct the disposition of

OppenheimerFunds, Inc.	17,728,158	17,879,118
D. E. Shaw Valence Portfolios, L.L.C.	6,573,466	6,573,466
D. E. Shaw & Co., L.P.	6,573,466	6,573,466
David E. Shaw	6,573,466	6,573,466
S.A.C. Capital Advisors, LLC	2,701,610	2,701,610
Sigma Capital Management, LLC	1,000,000	1,000,000
CR Intrinsic Investors, LLC	2,000,000	2,000,000
Steven A. Cohen	5,701,610	5,701,610
Tudor Investment Corporation	3,183,233	3,183,233
Paul Tudor Jones, II	3,475,946	3,475,946
James J. Pallotta	3,475,946	3,475,946
Tudor Proprietary Trading, L.L.C.	292,713	292,713
The Tudor BVI Global Portfolio Ltd.	543,659	543,659
The Raptor Global Portfolio Ltd.	2,617,307	2,617,307
The Altar Rock Fund L.P.	22,267	22,267

All insurgent directors were elected. These included Benjamin Feder, from ZelnickMedia, who became the acting CEO, Strauss Zelnick, also of ZelnickMedia, Jon Moses, CEO of UGO Networks, Michael Sheresky, from William Morris Agency, and Michael Dornemann, previously with BMG Entertainment.  John Levy, already on the board, was reelected and, according to published reports, Grover C. Brown, another incumbent, was reappointed by the board after the shareholders meeting.  The CEO Paul Eibeler was ousted. 

Once the results were in, the group amended its Schedule 13D announcing that the agreement "terminated pursuant to its terms" and that the group was no longer "deemed to have beneficial ownership" of the shares. 

So Take-Two mostly has a new board, one likely to be less preoccupied with prior problems.  Whether this will translate into improved fortunes for the company remains to be seen.  In the meantime, it demonstrates that sometimes shareholders can still actually use the meeting to take decisive action.  More on the consequences of this transaction tomorrow.