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THQ Has 50/50 Chance Of Going Bankrupt

| 2 Mar 2009 16:20
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Publisher THQ is at serious risk of following Midway into insolvency, according to analyst Mike Hickey, who said the company has a 50/50 chance of going bankrupt.

THQ's fortunes have suffered a rapid reversal, from over $1 billion in revenues and "record-breaking profits" in 2007 to a $334 million loss since mid-2008. The company's share price has plummeted from around the $20 mark to just over $2 and the Los Angeles Business Journal says it has burned through roughly half its cash reserves. With no real light at the end of the tunnel, a takeover is becoming an increasing possibility, while Janco Partners analyst Mike Hickey has gone so far as to suggest THQ is looking at even odds of bankruptcy.

"You have mediocre product and you're running out of cash," he said. "Not the situation they want to be in right now."

THQ CEO Brian Farrell naturally dismissed such comments, saying, "When the stock price is depressed, the naysayers can have their day in the sunshine. But we have a plan that we're very confident will give us cash and return the company to profitability." Part of that plan includes chopping $220 million in costs next year and laying off almost 600 employees, and the company has also borrowed $26 million to give itself some breathing room.

Unfortunately, THQ is also looking at the end of its licensing deal with Disney-Pixar, which at its peak provided as much as one-fifth of the company's revenues. The current deal allows for only two more games based on future Pixar releases, although given the soft performance of recent games based on Ratatouille and Wall-E, Wedbush Morgan analyst Michael Pachter said the agreement wasn't as lucrative as it once was. Farrell would not say whether THQ would pursue a renewal of the contract.

Analysts say it's possible for THQ to bounce back if things go well, but the margin for error is "thin." And if things don't work out, THQ's heavy reliance on licenses could make the company less attractive to potential suitors. "You want a strong basket of original properties that are of high quality, that's what acquirers are looking for," Hickey said. "Otherwise you have Midway."

via: GamesIndustry

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