The monumental ongoing battle that has gone on at Take-Two Interactive (NASDAQ:TTWO) seems to be coming to its apogee. After years of restatements, SEC investigations, and an epic war of words between the company's many friends and its critics, we see, once again, a substantially negative announcement coming out of the company.
This morning, Take-Two, maker of Grand Theft Auto, one of the most popular video game titles ever, announced yet another management reshuffling, as CEO Jeffrey Lapin stepped down after less than two years in the post. In these two years, Take-Two has bounced from accounting problem to accounting problem. Ashes to ashes, dust to dust, and all that. Lapin came into the post in 2002 with the company in disarray and in need of some cleaning up. He departs as the Securities and Exchange Commission continues investigations amid more massive restatements and is considering taking civil action against the company.
If Take-Two is in the process of developing any new games, may I suggest a title? How about The Recidivist?
As my friend Whitney Tilson has been known to say: "Looks like Herb Greenberg's got another notch in his belt." For more than two years Greenberg has been on the case at Take-Two for what seems like forever. In 2002, the company had to restate seven previous quarters after having to admit that it improperly booked revenues, all while it did a capital raise and insiders sold massive amounts of stock.
That was 2002. This time, Lapin leaves and Chairman Richard Roedel takes over as CEO. This comes simultaneous to a slash in earnings projections, as Take-Two, which forecast just last month that it would earn $0.33 per share for the quarter ending April 30, now says that severance expenses for Lapin and a delay in the launch of The Warriors for Sony's (NYSE:SNE) Playstation 2 platform will cause it to lose $0.15. For the year, the company now projects earnings of $2 per share on $1.17 billion in revenues, down from $2.45 on $1.22 billion. But it's interesting to note that Lapin's employment contract was recently changed to allow him some generous payments if he leaves the company "for any reason." In other words, whether a founder of the company recently received a Wells notice from the SEC doesn't matter, whether the company has massive restatements (again) doesn't matter, whether the company flails on its new release doesn't matter -- you still get your money.
Oh, OK, I have a better title: Rotten to the Core.
Roedel noted in today's press release that "the senior management additions we announced today are a significant step forward in strengthening our operational focus, which should lead to improved financial results going forward." Certainly, Take-Two has some operational issues, but what investors ought to demand isn't improvements in that regard -- what they need to demand is that the company clean up its act and quit treating all of them as if they are marks.
What does the company do instead? It brings in as president Paul Eibeler, who served in the same role during the last time Take-Two was monkeying with its books. He had left in 2003 to serve as chief operating officer for rival Acclaim Entertainment (NASDAQ:AKLM), but now he's back. That's not the most confidence-inspiring move I've ever seen from a company desperately needing to clean up its act.
How about a sequel? Grand Theft Accountant.
Things are a mess at Take-Two. Is there any reason to believe that the folks who are now installed at the company will treat their shareholders any better, or will this just end badly? The company's scofflaw antics have been outweighed time and time again by knockout titles -- should we expect this to always be the case?
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Bill Mann owns none of the companies mentioned in this article.
