Take-Two Interactive makes deal with Carl Icahn

Video game publisher Take-Two Interactive Software Inc. has decided it’s better to compromise with Carl Icahn than to fight.

Just a month after the activist investor accumulated an 11.3% stake in the struggling company best known for the Grand Theft Auto video game series, Take-Two has agreed to give Icahn nearly half the seats on its board of directors.

Take-Two Executive Chairman Strauss Zelnick struck the deal to avoid a potentially contentious fight at an upcoming annual meeting, according to people familiar with the situation who requested anonymity because negotiations were private. As he has threatened to do in the past with other companies such as Lions Gate Entertainment Corp. and Yahoo Inc., Icahn might have run his own slate and publicly criticized the current leadership.

Under the agreement, a copy of which was filed with the Securities and Exchange Commission, three members of Take-Two’s eight-person board of directors have agreed not to run for reelection in April, including Chief Executive Ben Feder, who will keep his CEO post.

The company will instead nominate three candidates chosen by Icahn for its official slate, including Icahn’s son, Brett, who works at his investment firm; Sunghwan Cho, a former director of finance for Atari who also works for Icahn; and James L. Nelson, a director at Icahn Enterprises.

As part of the deal, Icahn will vote all of his shares for the slate and agreed not to support any proxy votes at the annual meeting or to publicly disparage Take-Two or its leadership.

The new board members must resign, however, if Icahn’s holdings fall below 5%.

Zelnick and his management firm took over Take-Two after an accounting scandal in March 2007. He previously served as president of BMG Entertainment and 20th Century Fox.

Take-Two has continued to struggle financially, however. In the fiscal year that ended Oct. 31, the New York company reported a loss of $137.9 million, down from a profit of $97.1 million the previous year. Though its competitors have also been hurt by the economic downturn, Take-Two has been unable to turn a profit in years that it doesn’t release a major Grand Theft Auto sequel. More recently, it has had to delay the release of several major titles, and its sports game division has underperformed.

In 2008, Zelnick and the board rejected a $2-billion takeover bid by Electronic Arts Inc. Today, Take-Two’s market value is $781 million.

In a statement, Icahn praised the board for its “responsiveness.” According to people close to the talks, other major shareholders shared at least some of Icahn’s concerns about the company’s performance, which led Zelnick and his team to agree to give Icahn more than a third of the board seats although he owns just 11% of Take-Two stock.

“Advancing our stockholders’ interests is the board’s guiding principle, and it’s in that spirit that we’ve undertaken a change in board representation,” Zelnick said. “We have much to accomplish at Take-Two in the year ahead.”

Though Icahn will now have a much bigger say in Take-Two’s direction, it’s unclear what changes he wants. It’s unlikely that another acquisition offer the size of Electronic Arts’ is possible in the current economic environment.

“I’m a firm believer in the long-term potential of the company,” Icahn said.

Its shares fell 36 cents, or 3.7%, to $9.37 on Thursday.

ben.fritz@latimes.com