Following yesterday's upheaval of publisher Take-Two's Board of Directors and ousting of CEO Paul Eibeler, analysts have begun to weigh in on the changes to the company and what it means for Take-Two's prospects. Although several analysts had been saying that a change like this would good for Take-Two's health as a company, now that it's actually happened Wedbush Morgan Securities analyst Michael Pachter said he's "not optimistic."

"We are not optimistic that the changes made yesterday will have an immediate impact on Take-Two's operations, and our views about the company's value remain unchanged," he said. "We note that in its three highest earnings years, FY:2002 - 04, Take-Two earned an average of $80 million per year in net income, with operating expenses averaging $230 million. In our most optimistic scenario for the future, we think that the company could generate revenues and gross profit that would support net income at the $60 million level, provided that it can reduce its operating expenses to the $230 million level. However, we believe that the company is unlikely to reduce its operating expenses sufficiently, given that its current cost structure would require the new management to cut $150 million per year in order to return to 2002 - 04 levels. In our most optimistic scenario, we expect expense reductions totaling $115 million, resulting in sustainable net income of around $37.5 million per year. At a 24x multiple, this level of net income suggests a share price of $12."

And while Take-Two said during a conference that the new board would not institute company-wide layoffs, Pachter believes that Take-Two does indeed need to wield the axe and cut some jobs. "We are especially disappointed that the new board and management plans to take three to six months to develop a strategy, and are dismayed that no job cuts are planned in the immediate future," he noted. "We believe that Take-Two shareholders are being asked to wait another two quarters, at a minimum, before they can expect to see initial results that the proposed turnaround is making progress. As we continue to think that Take-Two shares will ultimately trade on fundamentals, and we see no prospects for improving fundamentals over the next six months, we are maintaining our Sell recommendation."

Pachter is not pleased with the choice of CEO either. "We also have difficulty endorsing Mr. Feder's choice as acting CEO. Mr. Feder appears to have no meaningful experience managing a large organization, nor does his resume suggest that he has any practical experience in the video game industry," he explained. "We understand that the dissident shareholder group assembled its board slate only recently, and that the search for a high quality CEO may take quite some time. Nonetheless, Mr. Feder's appointment as acting CEO with support from former CEO Paul Eibeler suggests to us that Take-Two will be run similarly to the way it has been run in the past, leading us to the conclusion that Take-Two shareholders likely will be required to wait more than a year before the proposed turnaround will make any meaningful impact. By that time, we believe that the company's fundamentals will prevail, and we expect Take-Two shares to find their equilibrium level near our price target."

Although Pachter seems thoroughly disappointed, Todd Greenwald of Nollenberger Capital Partners is far more positive about Take-Two near future following yesterday's big changes. "We believe TTWO now becomes a turnaround story, with shares driven by management changes (starting with the search for a new CEO) as well as a variety of moves to extract value," he said. "We believe the board will consider selling the distribution business as well as parts of 2K games, 2K Sports, and Globalstar with the ultimate goal of putting more focus on the crown jewels of the company, which lie in the Rockstar studio (developer of Grand Theft Auto, Midnight Club, Manhunt, Max Payne, Bully, and Warriors ). We note that within 2K the Irrational (Bioshock) and Firaxis (Civilization) studios stand out as the most valuable and least likely to be sold." Greenwald is maintaining a "Neutral" rating on Take-Two.