THQ Is Still Hurting, Seeks “Strategic Alternatives”
2012 has been an absolutely terrible year for THQ. Yes, they barely avoided being delisted from NASDAQ, but that’s a rather uninspiring accomplishment after a year in which the company nearly collapsed under the weight of its prior bad choices. When new CEO Jason Rubin took over the company last summer, he moved quickly on a program intended to lean the company out and get it back to producing what he called ‘core’ titles, meaning those most likely to sell, or those THQ customers most want to see. THQ was out of the empire business and back in the business of making several specific kinds of games. A good plan, especially if you’re a fan of those games that weren’t being shelved.
But will it save the company? That remains very much an uncertain outcome for the troubled publisher, and the news from THQ’s most recent investor statement, released today in a press statement, only adds further black clouds to its horizon.
First up, the company’s sales are healthy, though not rock solid. Non GAAP sales in Q2 were ahead of guidance at $91.8 million. Net loss per share was well below projections in the wake of their reverse stock split earlier this year, and the company ended the quarter with $36.3 million cash on hand. All good news, but slipped into the report was the announcement that the studio’s slate of AAA titles for 2013 have all been delayed. Company of Heroes 2 and Metro: Last Light have both been pushed back to an unspecified date in March, 2013, and South Park: The Stick of Truth has been delayed from its planned March, 2013 release into “early fiscal 2014.”
This means they will likely not be meeting their year end goals, and that’s creating a big problem with their ability to deal with their debt. “The calendar movement for the release of games will likely create a need for additional capital,” the press release states, adding that “THQ has engaged Centerview Partners LLC to assist the company in evaluating strategic and financing alternatives intended to improve THQ’s overall liquidity, including raising additional capital, preserve the company’s ability to bring the best possible games to market during the most advantageous release windows and to help address the $100 million 5% convertible senior notes due August 2014.” (Emphasis mine.)
Senior notes must be repaid before any other debt is taken care of. THQ is deeply in hock, and if the company were to go under, the senior debt holders would be entitled to their assets before anyone else has a crack at them. As a result, THQ is absolutely going to be scrambling for money. This is probably why they’re preparing for the worst. “There can be no assurance that the evaluation of strategic and financing alternatives will result in a transaction or financing, or that, if completed, said transaction and/or financing will be on attractive terms,” the statement says. “THQ does not intend to disclose developments with respect to the progress of its evaluation of strategic and financing alternatives until such time as the Board of Directors approves or completes a transaction or otherwise deems further disclosure appropriate.”
Basically, as it stands THQ lacks the money to fund their planned slate of games. Barring a series of huge huge hits, they’re going to make some tough choices. We can only speculate what those choices are, but it shouldn’t come as a shock if we start hearing rumors of interest from larger publishers seeking to buy THQ outright. That would be a humiliating outcome, but there might not be many options left.
We’ll be following this closely.