Yesterday’s second-quarter financial report had the company losing $21 million, and now it appears that a sale or — in the event that a sale doesn’t happen — the possibility of bankruptcy is looming. The company has enlisted the services of Centreview Partners, an advisory agency that recently facilitated several high-profile sales and bankruptcy proceedings for failing companies, including SonicWall and Residential Capital.
THQ has declined to take calls from investors in the wake of yesterday’s financial report.
In a statement to investors, Wedbush Morgan’s Michael Pachter wrote, “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.”
Last month, THQ shuttered its Asia-Pacific publishing business — a move that followed a series of cancellations for various in-the-works projects, including Guillermo Del Toro’s Insane and Valhalla’s Devil’s Third. Another high-profile upcoming project, South Park: The Stick of Truth was indefinitely delayed.
Back in July, the publisher narrowly avoided a delisting on NASDAQ, and has continued to struggle financially after losing one of its major licenses, the UFC fighting franchise, earlier this year.
“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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