Stock of the Day
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Midway (MWY)
Game Over for Midway
Midway, the publisher and developer behind popular video games like the Mortal Kombat franchise, filed for bankruptcy on Thursday. Through Chapter 11 protection, the company hopes to reorganize and prevent all of their debt collectors from simultaneously demanding their money back. Recently in December, the company laid off 175 people, including 45 from their Austin, Texas studio and another 130 from Chicago. Even before the company declared bankruptcy, their shares were trading below 20 cents and they have been generating net losses since their 2000 fiscal year end. The New York Stock Exchange has suspended trading for its common shares since this announcement. With bad news piling one on top of the other, is there no hope for this company?
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| Stock Analysis |
This news could not have come at a worse time for the company. Despite operating on a tightrope, the decision to declare bankruptcy came after Sumner Redstone, a stockholder who owned an 87 percent stake in the company, sold his 80.3 million shares to private investor Mark Thomas for $100,000 and $70 million in debt. Because of this sale, covenants were triggered and debt holders were allowed to demand their money back. Total debts equal $337.3 million but the company only had $178.3 in assets to pay it off. Aside from the operating losses, the industry as a whole has been hit by the economy negatively. Nintendo, the manufacturer behind the popular Wii video game console, had issued lower earnings guidance for the 2009 year. Even Guitar Hero could not spring Activision into a positive Q4.
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However, Midway feels they can turn things around. Requesting protection to continue operations makes sense given the company's historical impact on the industry itself. They state that being in debt protection would allow the company to pursue various strategic alternatives. Thus far, they have put aside "non-core" projects, meaning they would focus on titles that could be relatively successful and probably pushed to market relatively quickly. Citing their recent successes with "Mortal Kombat vs. DC Universe", the 700-employee firm feels that they have what it takes to turn the company around. Still, compared to Take-Two Interactive (TTWO: Charts, News, Offers) and Electronic Arts (ERTS: Charts, News, Offers), the company has published fewer blockbuster hits.
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So why would Mr. Thomas be interested in a failing company? Maybe he sees some potential that others do not. There is even speculation that he plans to take the company private and help rebuild its strong brand. Though it is unlikely, Mr. Thomas may decide to place a "for sale" sign on its lot. Who knows, maybe Electronic Arts will decide to buy out Midway. After all, they ended merger talks with Take-Two not more than 5 months ago, and they might still be in the market to buy a rival firm. It might even make sense to some extent. EA is known for their sports games as well as their fantasy and strategy games; they could subsequently benefit from having more action titles too. However, the corporate structure of the two companies is different enough that this probably will not happen. Furthermore, EA may not be the right cure for the the company's continuing losses.
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Note that this bankruptcy does not include Midway's non-US operations as those are continuing without interruption. There is still a possibility that Midway can do something huge and save itself. However, their historical record of accomplishment works against them and they have a tough economy to battle. Unless Mr. Thomas has an ace card up his sleeve, his investment will probably end up the same way Ricardo Salinas Pliego's investment in Circuit City did, in failure and mass liquidation.
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Profile |
Click here to view a detailed profile of Midway.
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