Thomson Reuters CEO Tom Glocer may want to reconsider being part of an effort to buy BusinessWeek. A report fromPaidContent says “the multimedia business media giant is working as a strategic partner in the ZelnickMedia bid for BusinessWeek.” Rumors are that Bloomberg is also a bidder.

Whatever the track record of Zelnick Media may be with private transactions, Zelnick has been part of the management and/or boards at two public companies which has become disasters for shareholders.

In May of 2005,  Strauss Zelnick was part of the dream team of directors that Carl Icahn helped put on the Blockbuster (NYSE:BBI) board of directors. Icahn joined the board himself. The other member of the group was Edward Bleier, a former Warner Bros. Entertainment executive. Since the three joined the board, Blockbuster’s shares have dropped from $10 to $1. From 2005 to 2008 Blockbuster has had net losses of over $1 billion. Zelnick made $77, 671 serving on the company’s board last year, according to its proxy.

The situation at Take-Two Interactive (NASDAQ:TTWO), where Strauss Zelnick is the chairman, is even worse. Zelnick Media took over effective day-to-day control of Take-Two under a management contract in March 2007. The share price of the video game company was $23 then. The stock trades just above $11 now. The stock rose as high as high as $27 in mid-2008 when Electronic Arts (NASDAQ:ERTS) made a bid to buy Take-Two. The board turned the offer down. Over its last four fiscal quarters ending July 31, Take-Two has had a net loss of $130 million, and revenue has declined each quarter over that period.

Zelnick’s deal with Take-Two has been a rich one as SEC documents show.

1. “Mr. Feder Take-Two”s CEO and a partner at Zelnick Media ) received no direct compensation from the Company in fiscal 2007 or 2008, other than a salary of $1 in fiscal 2008 and payment of life insurance premiums and reimbursement under the Company’s medical expense reimbursement plan, which payments and reimbursements aggregated to less than $10,000 in each of fiscal 2007 and 2008. Mr. Feder is a partner of ZelnickMedia, which is a party to a management agreement with the Company. In fiscal 2008 the Company paid to ZelnickMedia a management fee of $1,770,833 and a bonus of $1,770,833 and recognized $2,226,740 related to stock awards and $11,253,877 related to option awards to ZelnickMedia as determined in accordance with FAS 123R. See “Executive Compensation—Management and Employment Agreements—ZelnickMedia Corporation.”
The Company issued 2,009,075 stock options to ZelnickMedia at an exercise price of $14.74 per share in August 2007. The Company issued 1,500,000 shares of restricted stock to ZelnickMedia in June 2008. The Company recognized $2,226,740 and $11,253,877 of compensation for the stock awards and option awards, respectively, for financial statement reporting purposes for the fiscal year ended October 31, 2008 in accordance with FAS 123R for these grants. Except for the payment of premiums for life insurance and health benefits provided by the Company (including their participation in the MERP) and Mr. Feder’s annual salary of $1, Messrs. Feder and Zelnick were not compensated by us during the fiscal year ended October 31, 2008.
Pursuant to the Management Agreement, ZelnickMedia provides financial and management consulting services to the Company. ZelnickMedia consults with the Board of Directors and management of the Company and its subsidiaries in such manner and on such business and financial matters as may be reasonably requested from time to time by the Board of Directors. The Management Agreement initially had a term ending October 31, 2011, unless earlier terminated by either ZelnickMedia or the Company in accordance with the terms thereof, with automatic renewal for successive one-year periods unless either party terminates upon 90 days’ prior written notification to the other party. During the term, the Management Agreement initially provided that ZelnickMedia would receive a monthly management fee of $62,500, an annual cash bonus of up to $750,000 upon the achievement by the Company of certain performance thresholds and the grant of options and/or shares of restricted stock based on a predetermined formula. The Company did not achieve such performance thresholds for the fiscal year ended October 31, 2007 and no annual cash bonus was paid in respect of such year. The Management Agreement provided that, based on the then current market price of the Common Stock, the Company grant stock options and/or issue shares of restricted Common Stock to ZelnickMedia. Since the market price of the Common Stock was below the level specified in the Management Agreement, ZelnickMedia did not receive any shares of restricted Common Stock and, on August 27, 2007, we issued ZelnickMedia stock options to acquire 2,009,075 shares of Common Stock at an exercise price of $14.74 per share pursuant to the terms of the Management Agreement. These options vest in equal monthly installments over 36 months and expire 10 years from the date of grant. If the Management Agreement is terminated prior to October 31, 2012 (the termination date as provided in the Second Amendment discussed below) upon a Change in Control (as defined in the Management Agreement), ZelnickMedia ZelnickMedia “>will be paid on the date of termination all earned but unpaid management fees and accrued but unpaid annual bonus, all management fees that would have been paid through October 31, 2012, and the amount of the annual bonus that would have been paid for the current year based on the year-to-date performance of the Company, and all unvested stock options vest. In addition, if the Management Agreement is terminated in connection with a Change in Control, ZelnickMedia ZelnickMedia “>will be paid on the date of termination all annual bonus payments that would have been payable through October 31, 2012, assuming 50% of the maximum annual bonus would be payable in each future fiscal year. ZelnickMedia also is entitled to the reimbursement of expenses in connection with the Management Agreement and any and all transactions relating thereto. Strauss Zelnick, the President of ZelnickMedia, initially was entitled during the term of the Management Agreement to serve as non-Executive Chairman of the Company (and now serves as Executive Chairman in accordance with the Second Amendment, as described below). Mr. Zelnick also has the authority during such term to hire and/or terminate the Chief Executive Officer and the Chief Financial Officer of the Company, subject to the approval of the Compensation Committee.
As a result of the foregoing, the Company entered into a second amendment to the Management Agreement on February 14, 2008 (the “Second Amendment”). Pursuant to the Second Amendment, effective on April 1, 2008 the monthly management fee was increased to $208,333 ($2,500,000 per year) and the maximum annual bonus was increased to $2,500,000. The annual bonus for the fiscal year ended October 31, 2008 was $1,770,833, which was based on a maximum bonus of $312,500 pro rated based on five months at a maximum annualized rate of $750,000 and a maximum bonus of $1,458,333 pro rated based on seven months at a maximum annualized rate of $2,500,000. The Second Amendment sets forth in more detail the services and personnel personnel “>to be provided by ZelnickMedia. More specifically, the Second Amendment provides that Mr. Zelnick will be Executive Chairman of the Company and that Messrs. Feder and Slatoff shall enter into employment agreements with the Company to serve as Chief Executive Officer and Executive Vice President of the Company, respectively. These employment agreements are described below in this section. The Second Amendment also provides that other ZelnickMedia personnel will provide services to the Company on an as-needed basis. The Second Amendment extended the term of the Management Agreement until October 31, 2012, effective February 14, 2008.”

2. “On February 14, 2008, we (Take-Two) entered into an amendment to the management agreement with ZelnickMedia. The amendment, among other things, increased the annual management fee and the maximum annual bonus effective April 1, 2008, extended the term of the management agreement by one year to October 31, 2012 and provided that ZelnickMedia will provide the services of certain individuals, including the services of Messrs. Zelnick, Feder and Slatoff, and such other  class=”hiddenSuggestion” pre=”other “>individuals as it deems appropriate on a project-by-project, as needed basis for the performance of the management agreement. Messrs. Zelnick, Feder and Slatoff, each of whom is a partner at ZelnickMedia, as well as other employees of ZelnickMedia, provided services to us during the fiscal year ended October 31, 2008 pursuant to the management agreement. In addition, pursuant to the amendment to the management agreement with ZelnickMedia, additional awards of time-based and performance-based restricted stock were awarded to ZelnickMedia.
 
The Management Agreement initially had a term ending October 31, 2011, unless earlier terminated by either ZelnickMedia or the Company in accordance with the terms thereof, with automatic renewal for successive one-year periods unless either party terminates upon 90 days’ prior written notification to the other party. During the term, the Management Agreement initially provided that ZelnickMedia would receive a monthly management fee of $62,500, an annual cash bonus of up to $750,000 upon the achievement by the Company of certain performance thresholds and the grant of options and/or shares of restricted stock based on a predetermined formula. The Company did not achieve such performance thresholds for the fiscal year ended October 31, 2007 and no annual cash bonus was paid in respect of such year. The Management Agreement provided that, based on the then current market price of the Common Stock, we grant stock options and/or issue shares of restricted Common Stock to ZelnickMedia. Since the market price of the Common Stock was below the level specified in the Management Agreement, ZelnickMedia did not receive any shares of restricted Common Stock and, on August 27, 2007, we issued ZelnickMedia stock options to acquire 2,009,075 shares of Common Stock at an exercise price of $14.74 per share pursuant to the terms of the Management Agreement.”

Glocer may put up some of the capital for a BusinessWeek buy-out but he had better watch out for the management fees.

Douglas A. McIntyre was a member of the board of On2 Technlogies with Zelnick, and at one point when McIntyre was CEO, Zelnick was chairman.

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