DEC. 19, 2012 • With $248.1 million in debt and $204.8 million in assets, THQ Inc. filed for Chapter 11 protection with the U.S. Bankruptcy Court in the district of Wilmington, Del.  Only THQ’s U.S. units are covered in the voluntary filing, which seeks to facilitate sale of its four remaining studios, titles in development, and other business assets. Shares in the publisher had fallen 84% this year prior to the bankruptcy filing, reaching $1.22 prior to trading being halted. Shares fell below 50 cents after trading resumed. At the end of trading Tuesday, THQ’s market value was $11.2 million. As recently as 2007, the publisher was valued at $2 billion. The company’s former CFO, Paul J. Pucino, resigned on Nov. 21. The publisher already has a “stalking horse” suitor in Clear Capital Group, which makes a business of acquiring distressed companies and turning them around. If no other bidder tops Clearlake’s $60 million offer, the group will acquire THQ. For now, the publisher has credit commitments from Wells Fargo and Clearlake in the amount of $37.5 million to fund ongoing operations. THQ does not intend to lay off staff, or alter compensation agreements as part of the Chapter 11 filing.

Impact: In a year of such rapid change in the video game industry, THQ’s five-year market cap slide since its 2007 peak could be considered a slow, if not unpredicted, collapse. Much of the company’s bread-and-butter business was licensed children’s titles for the GameBoy – a segment that has faded away in the last seven years, and the recent transition to AAA core franchises is still a work in process.

The licensed IP kids business on handhelds used to be big for THQ.

THQ’s misfortunes are not unlike Midway or Atari’s collapse in recent years. While Atari transitioned from corporate entity to publishing brand with high name recognition and some nostalgic value, Midway’s 2009 bankruptcy filing led to liquidation with Warner Bros. picking up some of its studio assets and IP – mainly the venerable Mortal Kombat brand. THQ’s fate, however, may not necessarily be that of Midway’s though if it does collapse it is unlikely the name THQ will live on the way Atari’s has.  While certainly concerning to all stakeholders, THQ’s bankruptcy filing is clearly the best, most realistic option for THQ to survive over the next few quarters and to have any chance at a longer term turnaround.  Although the shareholders are getting wiped out, the creditors will be kept at bay giving time for THQ’s current projects, most notably South Park: The Stick of Truth, as well as a few other fan favorites from Saints Row to Company of Heroes sequels, time to complete and get to market. And that is the last, best hope for THQ as it will force the publisher to create high quality products and high quality, smart marketing campaigns to attract consumers. If it cannot deliver than it will certainly be out of options and be done for sure.

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