Cash-strapped Midway Games couldn’t fight the financial realities any longer, announcing on Thursday (Feb. 12, 2009) it is filing Chapter 11 bankruptcy. The move became a foregone conclusion when Sumner Redstone, who had kept the company afloat with his fortune, ran into financial trouble and had to sell his controlling interest for $100,000 to investor Mark Thomas.
That move triggered clauses in Midway’s debt agreements that allowed its noteholders to demand payment now. Midway doesn’t have the money, making it necessary to file for bankruptcy. The company has $240 million in debt but a market valuation of only $14.8 million. I’m no financial wizard, but none of that is good.
It’s not a financial article until somebody gets the word from Wedbush Morgan analyst Michael Pachter, who told the Los Angeles Times Midway now has “breathing room” from its creditors. He cites the liquidations of 3DO and Acclaim as proof that you don’t get much from taking a game company apart. The best chance for Midway’s creditors to get any money is for the company to start turning a profit, either through the Chapter 11 reconstruction or by getting purchased by someone else.One of the names getting kicked around is Square Enix, a company already looking to buy Eidos Interactive. Mortal Kombat vs. DC Universe was a big step in the direction of profitability. It moved 2 million units and breathed life into a fighting game franchise that had been stagnant. Next up is the Vin Diesel driving/action game Wheelman, set for a March 2009 release.
The Chicago Tribune is now reporting that a group of Midway bondholders filed an objection to the bankruptcy proceedings on Friday (February13, 2009). The bondholders are alleging shady dealings by Redstone and Thomas. They believe Redstone’s sale will allow him to garner some tax losses Midway should have been able to claim and that Thomas stands to reap benefits as well. Thomas’ deal makes him holder of $70 million worth of secured claims, putting him ahead of many of Midway’s creditors in getting payment. Again, Thomas paid only $100,000 to get control of Midway. Doesn’t look like there will be any “friendship moves” in these proceedings.