THQ Inc. (THQI:US), the money-losing video-game company, fell the most in 21 years after posting a second- quarter loss and announcing it hired Centerview Partners LLC to evaluate its options and raise cash.
THQ tumbled 50 percent to $1.50 at the close in New York, marking the biggest drop since November 1991. The shares have fallen 96 percent in the past two years, cutting the market value to less than $11 million.
Centerview, an investment bank based in New York, will help THQ improve its cash reserves, preserve its ability to develop games and refinance $100 million of convertible debt, according to a statement yesterday. The 5 percent senior notes are due in August 2014.
“I am confident about the opportunities that lie in our robust slate of games and in our studios,” Chairman and Chief Executive Officer Brian Farrell said in the statement. “But we also face challenges operating with limited capital resources in the highly competitive market for games, and we are working diligently to resolve those challenges.”
“South Park: The Stick of Truth,” “Company of Heroes 2” and “Metro: Last Light,” need more work and will miss their March release dates, President Jason Rubin said in the statement. The delays “will likely create a need for additional capital,” the company said.
Without more attention, the games may perform poorly, and “that could in turn lead to future additional capital shortfalls,” Rubin said in the statement.
The developer missed a shift to mobile devices and away from consoles, and burned cash with uDraw, a game tablet that failed to catch on last year, losing as much as $100 million, according to Brean Murray analysts.
“We expect THQ to raise financing through an equity sale that could lead to dilution of existing shareholders,” said Michael Pachter, an analyst with Wedbush Securities Inc. who has a neutral rating on the stock. “We expect creditors to be asked to renegotiate terms at a discount. If they are unwilling, bankruptcy is possible.”
The company reported a loss of $21 million, or $3.06 a share, for the second quarter ended Sept. 30, compared with a loss of $92.4 million, or $13.52 a share, a year earlier. Sales declined 26 percent to $107.4 million.
As of Sept. 30, THQ had $36.3 million in cash and had drawn $21 million on a $50 million credit line, it said.
“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,” THQ said.
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