When Grand Theft Auto V sold over a billion dollars worth of copies in just three days, Take-Two Interactive’s future didn’t seem so grim. Quite the opposite, in fact, as this meant they controlled an IP that happened to spawn the fastest selling product in entertainment history. So having Carl Icahn as a major investor in a company suddenly flush with cash and riding a PR tidal wave of success suddenly didn’t make much sense.
For those not keen on the financial world, Icahn is known as both a genius investor and known corporate raider, with opinions of those who don’t like seeing healthy companies destroyed leaning towards the latter. Perhaps the most notorious instance of this was in 1985 when Icahn took over the successful airline TWA who was beginning to see a small wane in revenue. Icahn spearheaded a hostile takeover of the airline and assumed control.
Of course, he was now massively in debt, and instead of leading the company to continued profitability and paying back the debt with personal revenue, he leveraged the debt on the company itself. To pay for this, the company begin to sell all of its assets including airplanes, which dwarfed them in size and resulted in massive layoffs. Just six years later, Icahn sold their most valuable possession — routes — to competitor American Airlines for $445 million dollars. All told, Icahn gained nearly a billion dollars in personal gain during the acquisition at the cost of destroying a once healthy company and costing its many of its employees their careers.
Icahn is also about as equally responsible for destroying Blockbuster as former CEO Jim Keyes (who got rid of “Total Access,” the company’s one chance at survival), by throwing the company into a chaos they could never recover from. All told, he’s tried or has done the same to Marvel Comics, Time Warner, Lions Gate, Motorolla, Viacom, U.S. Steel and more. So when Icahn purchased 11% of Take Two Interactive shares, it was worrisome.
Take Two Interactive, who owns subsidiaries 2K Games and Rockstar, isn’t exactly the biggest gaming publisher. Their name isn’t as recognizable as EA or Ubisoft, they have no presence at tradeshows like E3 and their production is substantially lower than other publishers their size. When they produce a game, however, they do it with a purpose. Max Payne, BioShock, Borderlands and of course Grand Theft Auto are big-hitters that move millions of copies. Ichan could obviously see this and perhaps more important saw a company with a chance for a drop in success. As THQ learned, it only takes a few mistakes to lose everything, so perhaps Ichan seeing the small slate of games on the horizon coupled with the company’s current positive cashflow from the successful releases of Borderlands and Grand Theft Auto IV piqued his interest. With the disappointment of L.A. Noire, it was all going to plan until a little something called Grand Theft Auto V showed up.
After grossing over a billion dollars (and counting), the company had little long term financial concerns. So instead of having to listen to a man who knows nothing about video games influence their business decisions, they cut him out. The company bought back his shares for 203.5 million dollars, ending his involvement whatsoever. Ichan likely realized that a sale of a company with such positive cashflow was not likely and so decided to focus effort onto another company.
This is fantastic news for Take-Two for two reasons. One of course is that Icahn is gone; the other is that a stock buyback is just about always the best sign for the continued and projected success of a company. It means the company is so content with its potential and current earnings that it wants to spread around its wealth less and has less reason to depend on shareholders.
Unfortunately, this news resulted in a drop in Take-Two’s stock price. As many investors follow Icahn, when he leaves a company, so do they. This resulted in over a one point drop, with the current price trading at $16.15 per share. While the metrics don’t seem great with a negative P/E Ratio and Earnings Per Share (meaning that the company is worth less than its trading for), things are already looking up for Take-Two. Not only are they still within a few points of their all-time high of $19.25 (which resulted from GTAV), but the company can go back to making decisions that it thinks are the best as it controls its own destiny more than it has since it went public.
With Icahn gone, gamers can rest-assured that Take-Two Interactive will be around for years — if not decades — cranking out the quality titles they’ve grown accustomed to. The fate is in their hands, and for the first time since Icahn bought in, those hands are clean.