Delaware Judges
Take-Two Interactive, the owner of Rockstar games, has gone to the US Securities and Exchange Commission and filed an amendment to the way it deals with employees who lose their jobs as a result of a take-over.
The company - which is building up to the April 29th release of the eagerly awaited Grand Theft Auto IV - is currently facing down the world's biggest video game publisher, Electronic Arts, which has offered T2 stockholders $26 (£13) per share. The shares are currently trading around the $25 (£12.50) mark.
By making the filing, Take-Two's senior management is saying, "Shields Up! Incoming!". Why? The detail is below, but the short version is: if EA is successful in its take-over bid, it will have to pay out a great deal of cash - and also see a vast amount of stock in the market - to any employees it sacks due to 'synergy' or 'rationalisation'. Who is most likely to get canned? Senior management, that's who.
EA has responded to the Mercury News, with an email from spokesman, Jeff Brown that couched the severance deal as "...a typical defensive move. EA typically provides severance and outplacement assistance for employees found to be redundant. We would have preferred to use our own plan for this action. In any scenario, we would take care of these employees."
The filing (which can be seen in full here) states:
The plan details the fact that as CEO (in this case Strauss Zelnick) will receive, "1.5 times the Participant’s Base Salary plus Bonus". If you are "Senior Vice President or Studio Head", (for example, the head of Rockstar North?) you stand to get, "1.0 times the Participant’s Base Salary plus Bonus".
Also, importantly, if you''re an employee with a bunch of stock options that you would normally have had to wait sometimes years to realise in cash, your options, "shall become fully vested as of the effective date of the Participant’s termination.
"Any stock option, stock appreciation right or similar award that provides for a Participant elected exercise shall become fully exercisable".
It's also a good idea to note that this plan doesn't just apply to the current setup of T2... oh no, "For purposes of the Plan, the Company shall include any and all successors or assignees, whether direct or indirect, by purchase, merger, consolidation or otherwise..."
Not clear enough? Try this:
Essentially, if you buy us and sack the board, don't think that you're not going to have to pay the severance and turn those stock options into real life shares.
Now, some people don't like the look of this amended severance plan. One of these people is Patrick Solomon whose lawyers, Prickett, Jones & Elliott, have filed a suit with the Delaware Chancery Court that, according to The LA Times, alleges that Take-Two's "...management improperly tried to keep the buyout offer secret in order to enrich its senior executives".
The legal filing is a "breach of fiduciary duty" and was filed on Friday 7th March - Take-Two has responded that, "We believe the claim lacks merit, and we intend to defend vigorously against the litigation."
The 'enrichment' in question is a new agreement within Take-Two that was filed shortly after the EA bid was disclosed in February. The amended agreement sees CEO Zelnick's management fee rise by $62,500 (£31,250) a month to $208,333 (£104,150) a month. The maximum annual bonus to be paid to Zelnick's investment company, ZelnickMedia, went up from $750,000 (£375k) to $2.5 million (£1.25m) a year.
The Street.com reports that Solomon's case alleges, "While the original management agreement was negotiated with stockholders owning 46% of Take-Two's stock, the amendment was entered into without stockholder approval. The amendment itself is not subject to stockholder approval."
The kicker in the suit is that:
So, this Take-Two stockholder seems to believe that T2 management didn't release news of the EA bid until it had already managed to protect itself. That is quite an accusation.
It is also one that comes at the same time as - according to Yahoo News - that two of Take-Two's biggest shareholders have been offloading their stock, "potentially undermining management's stance that a $1.9 billion buyout offer from Electronic Arts is too low."
Yahoo reports that, "U.S. mutual fund company Oppenheimer Funds, Take-Two's biggest shareholder, halved its holdings to 8.8 million shares...
"...Fidelity Mutual Funds that was the second-largest owner of Take-Two shares, also reported that it had slashed its stake to 2.75 percent from 14.7 percent."
So, when mutual funds start bailing, shareholders start suing and management start preparing their cushioned exit strategy, a successful EA take-over is looking more and more likely to occur sooner rather than later.
The company - which is building up to the April 29th release of the eagerly awaited Grand Theft Auto IV - is currently facing down the world's biggest video game publisher, Electronic Arts, which has offered T2 stockholders $26 (£13) per share. The shares are currently trading around the $25 (£12.50) mark.
By making the filing, Take-Two's senior management is saying, "Shields Up! Incoming!". Why? The detail is below, but the short version is: if EA is successful in its take-over bid, it will have to pay out a great deal of cash - and also see a vast amount of stock in the market - to any employees it sacks due to 'synergy' or 'rationalisation'. Who is most likely to get canned? Senior management, that's who.
EA has responded to the Mercury News, with an email from spokesman, Jeff Brown that couched the severance deal as "...a typical defensive move. EA typically provides severance and outplacement assistance for employees found to be redundant. We would have preferred to use our own plan for this action. In any scenario, we would take care of these employees."
The filing (which can be seen in full here) states:
"The purpose of the Plan is to enable the Employer to offer certain protections to employees if their employment with the Employer is terminated without Cause or for Good Reason in connection with a Change in Control."
The plan details the fact that as CEO (in this case Strauss Zelnick) will receive, "1.5 times the Participant’s Base Salary plus Bonus". If you are "Senior Vice President or Studio Head", (for example, the head of Rockstar North?) you stand to get, "1.0 times the Participant’s Base Salary plus Bonus".
Also, importantly, if you''re an employee with a bunch of stock options that you would normally have had to wait sometimes years to realise in cash, your options, "shall become fully vested as of the effective date of the Participant’s termination.
"Any stock option, stock appreciation right or similar award that provides for a Participant elected exercise shall become fully exercisable".
It's also a good idea to note that this plan doesn't just apply to the current setup of T2... oh no, "For purposes of the Plan, the Company shall include any and all successors or assignees, whether direct or indirect, by purchase, merger, consolidation or otherwise..."
Not clear enough? Try this:
"In the event the surviving corporation in any transaction to which the Company is a party is a subsidiary of another corporation, then the ultimate parent corporation of such surviving corporation shall cause the surviving corporation to perform the Plan in the same manner..."
Essentially, if you buy us and sack the board, don't think that you're not going to have to pay the severance and turn those stock options into real life shares.
Now, some people don't like the look of this amended severance plan. One of these people is Patrick Solomon whose lawyers, Prickett, Jones & Elliott, have filed a suit with the Delaware Chancery Court that, according to The LA Times, alleges that Take-Two's "...management improperly tried to keep the buyout offer secret in order to enrich its senior executives".
The legal filing is a "breach of fiduciary duty" and was filed on Friday 7th March - Take-Two has responded that, "We believe the claim lacks merit, and we intend to defend vigorously against the litigation."
The 'enrichment' in question is a new agreement within Take-Two that was filed shortly after the EA bid was disclosed in February. The amended agreement sees CEO Zelnick's management fee rise by $62,500 (£31,250) a month to $208,333 (£104,150) a month. The maximum annual bonus to be paid to Zelnick's investment company, ZelnickMedia, went up from $750,000 (£375k) to $2.5 million (£1.25m) a year.
The Street.com reports that Solomon's case alleges, "While the original management agreement was negotiated with stockholders owning 46% of Take-Two's stock, the amendment was entered into without stockholder approval. The amendment itself is not subject to stockholder approval."
The kicker in the suit is that:
"Overall, defendants structured the amendment with knowledge of EA's initial offer and keen interest in acquiring Take-Two so that an acquisition by EA would entitle ZelnickMedia to approximately $17 million in fees and bonuses, $22 million in option profits and $20 million to $39 million for restricted shares."
So, this Take-Two stockholder seems to believe that T2 management didn't release news of the EA bid until it had already managed to protect itself. That is quite an accusation.
It is also one that comes at the same time as - according to Yahoo News - that two of Take-Two's biggest shareholders have been offloading their stock, "potentially undermining management's stance that a $1.9 billion buyout offer from Electronic Arts is too low."
Yahoo reports that, "U.S. mutual fund company Oppenheimer Funds, Take-Two's biggest shareholder, halved its holdings to 8.8 million shares...
"...Fidelity Mutual Funds that was the second-largest owner of Take-Two shares, also reported that it had slashed its stake to 2.75 percent from 14.7 percent."
So, when mutual funds start bailing, shareholders start suing and management start preparing their cushioned exit strategy, a successful EA take-over is looking more and more likely to occur sooner rather than later.
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