Billionaire buys up 11% of Take-Two

Carl Icahn increases stake in Grand Theft Auto publisher; news of his interest boosts share price more than 11%, sparks speculation of shareholder revolt.

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When a group of angry shareholders led by Strauss Zelnick overthrew the Take-Two board of directors and installed a new executive team with Zelnick as chairman in March 2007, the publisher's stock was trading for more than $21. Yesterday, Take-Two stock closed at $8.25, and some analysts suspect Zelnick might himself be the target of an investor uprising.

Carl Icahn now controls an 11 percent stake in Take-Two.
Carl Icahn now controls an 11 percent stake in Take-Two.

Yesterday, billionaire investor Carl Icahn revealed through SEC filings that his companies had acquired more than 11 percent of Take-Two shares in a series of purchases over the last two weeks. After Take-Two preannounced disappointing fourth quarter results after the close of trading on Thursday, December 3, the publisher's stock shed more than 30 percent of its value overnight. Starting the following Monday, Icahn and his partners made dozens of stock purchases (including call options) to obtain their current stake in Take-Two.

Some industry watchers have taken this as a sign that Icahn intends to force a sale or management overhaul of the company. Wedbush analyst Michael Pachter today released a note to investors saying, "We believe that Mr. Icahn intends to force the company to consider a sale." That was a sentiment ThinkEquity analyst Atul Bagga echoed to Reuters. However, Pachter noted that Zelnick and Icahn have a history that may come into play whatever the scenario.

"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," Pachter said. "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."

Icahn's SEC filing made no mention of further plans to increase his stake in Take-Two, but it did note he might "seek to have conversations with" representatives of the company.

The billionaire's reputation as an activist shareholder is so strong that his very involvement in a stock can boost its value. Icahn first took interest in Take-Two in August of 2006, with the acquisition of just over 1 percent of the company's stock for about $10.82 per share. After the news got out, Take-Two shares ended the next day's trading at $11.56.

Icahn's latest round of Take-Two share purchases seems to be having a similar effect. As of press time, the game company's shares are trading up more than 11 percent to $9.18.

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