Proxy Services Divided Over Take-Two's Response to EA

Proxy advisory firms are divided over what shareholders of Take Two Interactive Software Inc. (TTWO), which is trying to fend off a $1.9 billion hostile offer from rival Electronic Arts Inc. (ERTS), should do at the video game company's April 17 annual meeting.

RiskMetrics Group (RMG) (formerly Institutional Shareholder Services) is advising shareholders to back company-supported board members and approve an equity grant of 2 million shares in a stock incentive plan, which includes 1.5 million restricted shares to ZelnickMedia Corp., the consulting company that has been running Take-Two since a group of investors took control of the company last year. By contrast, proxy firm Glass Lewis & Co. is recommending that investors withhold support for Take-Two's board nominees and that they reject the equity grant.

In supporting the game maker's stock proposal, RiskMetrics did express concern with the size of the equity grant, noting that the timing of the amendments appears "opportunistic" in light of EA's $26 a share offer for Take-Two. However, the proxy firm notes says there are performance conditions attached to a significant portion of the total equity grant and that the amendments were under discussion in December, long before EA made play to buy the company.

Glass Lewis is openly critical of Take-Two boardmembers. It contends that the actions of Take-Two directors leading up to and following EA's proposed acquisition "sharply diverge from the board's stated objective of maximizing shareholder value." The firm also says that the board has "wholly subverted value considerations for the sake of entrenching management and discouraging further acquisition attempts." It also notes that an amended management agreement with ZelnickMedia "has the distinct appearance of self-dealing."

In opposing Take-Two's proposed stock incentive plan, Glass Lewis claims it benefits ZelnickMedia at the expense of shareholders and may "hinder a third party's attempt to acquire the company rather than incentivizing employees, which should the paramount focus of such a plan." -- David Shabelman

See March 31 story from Reuters
See March 28 story from Tech Confidential