Take-Two shares last traded down 13.7% to $14.69 as Banc of America analyst Gary Cooper downgraded the publisher of the "Grand Theft Auto" franchise to sell from hold and lowered its price target to $12 from $17.
In addition, the company revealed in a filing with the U.S. Securities and Exchange Commission earlier this week that one of its board members left the company because its management "failed to keep the board informed of important issues."
The board member, Barbara Kaczynski, said the issues included "various SEC inquiries directed at Take-Two and its employees."
A phone call to a company spokesperson wasn't returned.
Further, the Los Angeles city attorney's office on Thursday sued the company for allegedly hiding pornographic material inside the video game "Grand Theft Auto: San Andreas." The office has sued Take-Two and an affiliated video game studio, RockStar Games, for misleading statements.
The suit represents continued fallout over the sexually explicit scenes hidden within the popular game's software code. A downloadable modification -- dubbed "Hot Coffee" -- allowed players to unlock scenes in which characters are depicted as having sex.
"Greed and deception are part of the 'Grand Theft Auto: San Andreas' story - and in that respect its publishers are not different from the characters in their story," said LA City Attorney Rocky Delgadillo, in a statement. "Businesses have an obligation to truthfully disclose the content of their products -- whether in the food we eat or the entertainment we consume."
In July, Take-Two cut its third quarter and fiscal year earnings estimates after an industry group assigned an "Adults Only" rating to the game. The summer announcement would prove to be the first of numerous earnings revisions issued by the New York-based company. See "Hot Coffee" warning.
Other risks to Take-Two shareholders, wrote Cooper, include its over-dependence on the "Grand Theft Auto" brand, an unprofitable diversification strategy, cash burn and governance issues.
Cooper also said the next version of Grand Theft Auto will launch later than previously thought, likely in October of 2007. The analyst reduced his earnings estimate for fiscal 2006, which ends Oct. 31, to 59 cents a share from 80 cents a share.
Kaczynski was chairman of the company's board audit committee. The company named Michael Malone as her replacement, and the board size will remain at seven members.
Kaczynski said her concerns rose "significantly" as the company prepared to release it delayed quarterly filing with the SE because of what she views as "an increasingly unhealthy relationship between senior management and the board of directors."
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The bad news for Take-Two Interactive just continues, they also only have $75 million in cash reserves. This whole hot coffee incident(which they can only blame on themselves) combined with other stupid things like spending milliongs to basically just stop Electronic Arts from making Major League Baseball games is just hurting Take-Two. It also doesn't help that they basically focus and over-rely on the GTA brand.
Linear Mode
