THQ's rapid-fire sale is facing opposition from both lenders and the trustee overseeing the bankruptcy process.
THQ announced on December 19 that it had entered into an agreement with Clearlake Capital Group on a "stalking horse bid" that would see the company pay a little over $60 million for "substantially all" of THQ's assets, including the studios and franchises under its control. The sale process allows other interested parties to enter competing bids, but they must beat Clearlake's initial bid to do so. But THQ also limited the process to 30 days, which U.S. Trustee Roberta DeAngelis said in an objection filed with the court "is too short of a window to let interested parties participate in the sales process."
DeAngelis claimed in the objection that the sales process being rushed because of the actions of a secured lender, who will be repaid under the terms of the agreement. She further stated that the breakup fee and expense reimbursements, at $1.75 million and $500,000 respectively, are "excessive" compared to the relatively small cash portion of the sale, and that the bidding procedure as it stands allows only a "small subset of people" to take part.
Shortly after DeAngelis filed her objection, a similar objection from creditors including Silverback Asset Management, Third Avenue Focused Credit Fund and Wolverine Flagship Fund Trading was also filed, asking that the proposed bidding procedure not be approved. "Rather than facilitating 'an open and fair public sale' and 'enhancing competitive bidding,' the Debtors' proposed Bidding Procedures appear to have been expressly designed to chill bidding and ensure that the Debtors consummate the sale of their business 'as a whole' to Clearlake, regardless of whether such a sale is in the best interests of the Debtors' unsecured creditor," the objection states.
"Simply put, the timeframe during which the Debtors seek to consummate the sale is too short a period for prospective bidders to be in a position to bid on the Debtors' assets. In order to comply with the Bidding Procedures' accelerated timeline, prospective bidders would be required to, among other things, conduct comprehensive due diligence and obtain financing (if necessary) within four (4) days of the hearing on the Bidding Procedures Motion," it continues. "This difficulty is compounded by the fact that the Debtors have proposed that this expedited process beconducted during the holiday season, a time during which the Debtors and their professionals know most people in the Debtors' industry - - i.e., the parties that might be most willing to bid on the Debtors' assets - - are 'shut down' or not available."
The group also expressed concern that Clearlake will have too much control over the bidding process and that the focus on keeping THQ whole and a "going concern" isn't necessarily in the best interests of its unsecured creditors. The proposed process would allow THQ to reject bids for anything less than all of its assets, even if "there is reason to believe that more value may be generated by a sale of the Debtors' assets on a 'piecemeal' basis." There's even an allegation that Jason Rubin, who took over as president of THQ in May 2012, and his partner Jason Kay orchestrated a "takeover" of THQ to "capture, for themselves, the significant 'upside' value in the Debtors' business. "The Jasons," as the suit calls them, replaced former members of management with their own team and, within two weeks of Rubin's hiring, brought in Centerview Partners LLC, which had previously backed Rubin in prior transactions, to find "an investor that would provide new liquidity to fund the Debtors' business plan, or a buyer for substantially all of the Debtors' assets."
What happens next is anybody's guess, but it looks like THQ's plan for a quick-and-easy 30 Day Fire Sale Extravaganza might just be a little more complicated than we expected.