Number of critics of Take-Two pay package increases

Posted Feb 27th 2008 3:38PM by Douglas McIntyre
Filed under: SEC Filings, Deals, Management, Electronic Arts (ERTS)

It appears that just after Electronic Arts Inc. (NASDAQ: ERTS) made a bid for Take-Two (NASDAQ: TTWO) that the board of the smaller company granted management an extraordinary pay package. A number of media are now "going negative" on that deal.

According to The New York Times, "Just days after Take Two Interactive, the troubled video game maker, received a buyout offer from a rival, Electronic Arts, the board of Take-Two approved a measure that significantly increased the compensation that management would receive in a merger or takeover, according to regulatory filings." The Wall Street Journal and MarketWatch have raised similar concerns.

Among other things the monthly management fees paid to ZelnickMedia, which employs the Take-Two CEO and Chairman, went from $208,333 a month up from $62,500. In the case of a takeover the management company would receive 780,000 shares.

The deal not only looks bad, it is bad. The board of the company should have known that the data would come out in SEC filings and that it would look like a sweet-heart deal for the most senior management at Take-Two. The matter highlights that boards and executives are still willing to cut arrangements that favor bosses over employees and shareholders.

In this case, shareholders should ask for a change or file a class-action suit.

Douglas A. McIntyre is an editor at 247wallst.com.

Tags: electronic arts, ElectronicArts, mergers, take two interactive, TakeTwoInteractive, videogames