Grand Theft Share Price, Corporate Doublespeak, pt. 2

As further evidence of my MBG post Why I Don’t Own Stock In Game Publishers, I present Take Two.

Where Your Investment Is Going

Where Your Investment Is Going


After fending off Electronic Arts’ hostile take over bid earlier this year, Take Two just announced a fourth quarter loss of $15MM, and their projected 2009 estimates have gone from a profit of $1.21 per share to $0 per share. Remember, 2008 was a GTA year, and they still lost money. What was Strauss Zelnick’s take?

“The Take-Two Chairman expressed marked concern about the economic climate, but urged investors that the company is well-positioned”

Sound familiar?

As an exercise in futility I did a few calculations to see if Zelnick was right in fending off EA’s hostile bid. Let’s see, EA offered $2 Billion in cash in March of 2008. Take Two’s ($ttwo) stock was roughly $15.85 per share before the bid, and the day of the bid, the stock shot up to $26.89, roughly the value of the offer. Zelnick, in classic Jerry Yang of Yahoo’s amazingly greedy style, said the company was worth much more. After several months of haggling, EA pulled out. Today $ttwos share price was $8.43 for a market cap of $654MM, which, for those without a calculator, is over $1.3 Billion less than the earlier ALL CASH offer.

There is no GTA coming out next year, and probably not the year after. If the $ttwo share price is worth a couple of Starbuck cappuccinos at the end of a GTA year, what will it be worth next year? Not $2BB. Good job, guys.

On the other hand, I bet EA is happy they didn’t shell out the $2BB in cash. They just announced more layoffs of up to 1,000 people and the closure of Black Box studio (plus seven others). They are going to need the money to get things turned around.

-Jeff Tunnell, Game Maker
Make It Big In Games
Photo by Jarlhelm.

  • msuarez

    The Zelnick/Yang comparison is interesting. I think there is something else at work besides greed, though. I think it's EGO. I can only guess but I think these two said no to deals that were clearly in the best interests of their company and the shareholders because of some personal dissatisfaction with the projected outcome. Again, I'm only guessing but I suspect they were loathe to lose any power or control. I humbly suggest that the best action in both cases would have been to accept the offer and pivot off that into a brighter future, leveraging the substantial human resources and financial assets of their new partners.

    • http://www.makeitbigingames.com Jeff Tunnell

      I totally agree, Mike. In Yang's case, I am sure it was years of calling Microsoft the evil empire, years of saying that Yahoo was smarter and more nimble, and then having to swallow pride to take their money in a buy out. What they both forgot was what their job description entailed. They did let their egos take over and forgot their fiduciary duty to their shareholders.

  • jgostylo

    I am sure there was a lot involved in the negotiations on both of those deals and it is presumptive to say that greed/ego was necessarily the determining factor. And while maybe it can be chalked up to ego to say that you can do something way better than the large entity trying to buy you out, maybe you are correct.

    Sometimes the offer is just too good and you need to cash out and move on. But who is to say where EA/TT or MS/Yahoo will be in 2010 or 2015.

    One mistake I see in business all the time (and people gripe about this all the time) is that fiduciary duty is linked to short term gain instead of making the correct long term decisions.

    These cases are a bit extreme where it seem like the buyer was willing to pay an outrageous premium, but last I checked Yahoo is still profitable and TT may have some really good IP it believes in that is already in the pipe and does not want EA calling the shots.

    • http://www.makeitbigingames.com Jeff Tunnell

      Have you ever owned stock in a company? Most of the time you own that stock to make money, and you want to most return in the shortest amount of time. No shareholder in yhoo or ttwo wants to wait until 2015 to get back to an amount they could have made today. It is the fiduciary duty of the CEO to maximize that investment.

      The bottom line is that neither Zelnick or Yang were right. They have been proven wrong. It was wrong for them to turn down the offers. I predict right now that their stocks will never reach the heights they were offered. But it won't matter to them because in 2015 Yang will still have hundreds of millions of dollars and Zelnick will be worth millions as well. But, what about the normal people that has IRA or 401K or retirement money in those stocks.

      It was greed, ego, or hubris combined that did these deals in. Yang has already stepped down, and Zelnick should be fired.

      • jgostylo

        Have I ever owned stock in a company? Nice question. I am still pretty young so I have only been in the market for 10 years and have purchased individual stock of some 40 companies along with whatever crap went with my 401k/IRA.

        There are several camps of investors and I know what you are preaching has been a very popular camp for decades. The one I choose to follow was started by Ben Graham and was picked up by his disciple Warren Buffet.

        Your camp is one of Rock Stars and fast cash. It is gambling and it is destructive. I think the reason you got out of the market so long ago is that you were burned by what you were told was investing. You were right to flee from what you had been doing because you were doing it wrong. You should invest, not gamble. You don't lose your shirt investing. And don't reply that many investors lost their shirts in this recent crash cause I will reply that many dumbasses lost their shirts. My portfolio is still doing quite alright because I don't invest like a rock star.

        Bottom line is you have no clue if Zelnick or Yang were right or wrong. Nothing has been proven. Short sighted people say that it has. Yang we will never know because he was forced out, Zelnick time will tell. My point is that sometimes it is the correct decision to not sell out. Sometimes you can build a bigger and better company than what the buyout would give. It has happend. You could be right, but saying you definitely are is wrong.

        • http://www.makeitbigingames.com Jeff Tunnell

          Getting out of the market when I did saved me a LOT of money that I can choose to invest now how I wish. I have never claimed to be a great investor, and this post was about why I don't invest in game companies, which I do know about. I am certainly not in the camp of Rock Stars and fast cash, but I know I am right about Yang and Zelnick, i.e. they should have accepted the buyouts. There is a time value of your investment, and taking that into account says I am right now matter what their stocks do in the future.

          • jgostylo

            I totally agree with you about not investing in Game Publishers but precisely for the reason that they are Rock Stars and fast cash. There is very little stable about them. You may look for those huge returns but the risk is you will lose a good deal of the time. That is why they are not a good investment.

            Now time value of money and opportunity cost are incredibly important factors to weigh in with investing, but looking to make a quick buck is precisely the way to lose over the long term. Stock owners usually demand the quick buck and I am saying it is a shame is all. In the end it does not help them.

            I am playing devils advocate because given even odds, I would wager precisely as you called it where the decisions made were poor. This is especially in Yang's case.

            Given Taketwo's success record, though, this might be a great time to buy their stock given the bad feelings current investors may have. It's all about if the price justifies the risk. And I would not count out the possibility that you are wrong on the call that they will never be valued at the offer they blew even time value adjusted. I would just say you are probably right.

            Anyway, I think you are correct that stock in game publishers is a terrible investment idea. I also think that you come to the correct conclusion via an incorrect or only mildly related path. It is not an investment if the options are make 8x my money or crash and burn unless you directly influence the outcome.

            Zelnick was hinting at something very correct when you quoted him. You should own the stock if you believe in the position of the company. If you bought the stock based only on the belief that EA would pay $2BB for the company then you go down on your paper ship. That is a gamble, oops you lose. I will reiterate by pointing out that their stock went to $26.89 (roughly the value of the offer). I am sure the people selling at that level realized there was no upside to holding the stock (as it was near the same value they would have gotten anyway) and huge risk if something went wrong. Maybe the ones holding were the greedy ones hoping Zelnick could squeeze a little more out it.

            The reason I am taking time to point all this out is, as you said, that your article is why to not invest in game publishers. You position yourself as someone with expertise and, in my opinion, your argument does little to actually validate your premise. Since you post about investing in game publishers and have a comments section, I wanted to fill in the holes I think you left.

  • http://www.facebook.com/profile.php?id=504027764 Jeff Tunnell

    Checking out my fancy new Facebook log in via Disqus feature!

  • sharoncfejes

    On the other hand, I bet EA is fidelity 401k happy they didn’t shell out the $2BB in cash. They just announced more layoffs of up to 1,000 people and the closure of Black Box studio (plus seven others). They are going to need the money to get things turned around.