We feel this is a win-win situation for both the companies, as the buyback would help Take Two to increase its ownership stake, whereas Icahn Associates would rake in a profit of $85.0 million from the sale.
Icahn is known for buying substantial stakes in companies and at the same time pushing them to restructure their corporate strategy or management policies. Moving on those lines, Icahn increased his stake in Take-Two to 12.9% from 11.7% in 2012. While the trading price was $12.00 at that point of time, the stock reached a five-year high of $19.25 in Aug, 2013.
After Icahn decided to sell his stake in Take-Two, the directors designated by Icahn Associates resigned from the board, conforming to the earlier decision. As Icahn is well known for his activism, the recent stake buyback would provide Take Two even greater autonomy and help it to make decisions independently.
Lately, Take Two has gained significant attention due to the popularity of its latest release Grand Theft Auto V. In the recently concluded fiscal 2014, revenues surged 340.3% year over year to $1.27 billion.
Take-Two management disclosed that the company has 10 games lined up for launch but refrained from providing details. The company seems to be optimistic about its product line up, which is expected to generate increased cash.
Although the company has a decent product portfolio, stiff competition from game developers such as Electronic Arts (EA – Analyst Report), Activision Blizzard Inc. (ATVI – Snapshot Report) and social gaming companies such as Zynga Inc.(ZNGA – Snapshot Report) remains a major headwind in the near term. Moreover, a fragmented gaming industry may temper growth prospects to a certain extent.
Take-Two has a Zacks Rank #3 (Hold).