THQ faces bleak future of sale or bankruptcy
Publisher criticised for "over-promising and under-delivering" over 5 year turnaround
Troubled publisher THQ is likely facing a sale or bankruptcy, following continued poor financial results.
The company has appointed Centreview Partners to find "strategic and financing alternatives" for the company - a term associated with the search for a sale. Following second quarter financial losses of $21 million yesterday, the firm refused to take calls from investors on the advice of Centreview.
"We expect creditors to be asked to renegotiate terms at a discount; if they are unwilling, bankruptcy is possible"
Michael Pachter, Wedbush Morgan
Centreview Partners was advisor to the sale of Pfizer's nutrition business to Nestle earlier this year for $11.85 billion, the sale of SonicWall to Dell and the bankruptcy of Residential Capital.
"Should its financial position continue to deteriorate, we expect THQ to raise financing through an equity sale that could lead to dilution of existing shareholders," commented Wedbush Morgan's Michael Pachter in a note to investors.
"We expect creditors to be asked to renegotiate terms at a discount; if they are unwilling, bankruptcy is possible."
"Although THQ has been able to lower its cost structure through layoffs and a streamlined release slate in order to temporarily improve profitability, it is unlikely to return to profitability unless its revenues once again begin to grow."
The company has delayed three games - South Park: The Stick of Truth, Company of Heroes 2 and Metro: Last Light - and refused to offer guidance.
"Fewer releases in the near-term will likely lead to sustained revenue declines and constrained development budgets for the upcoming games, negatively impacting game quality and quantity," added Pachter.
"Management has a track record of over-promising and under-delivering, and the company has been in turnaround mode for the last five years. The additional game delays, hiring of a financial advisor and refusal to take questions increase our skepticism that a turnaround plan can be executed before the company runs out of cash.
"We do not believe THQ is investable for most institutions."
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