NEW YORK — Viacom Inc.’s Spelling Entertainment reached a deal to sell the bulk of its game division, Virgin Interactive Entertainment, to Electronic Arts for $122.5 million in cash in a sign that Spelling’s long-running attempts to dump Virgin are almost over.
While Virgin retains its European sales and distribution operation and its Virgin game library catalog, Spelling said the assets being sold “represent the substantial majority of the value of Virgin Interactive.” The prize in the sale is Virgin’s Westwood Studios subsidiary, which was responsible for most of Virgin’s hits.
A spokeswoman for Spelling said the company was reviewing its options for disposal of the remaining Virgin assets.
Long time coming
The sale comes 18 months after Spelling put Virgin on the market when it announced plans for an initial public offering of the company at a value estimated then to be about $250 million. The offering never occurred, and instead Spelling’s bankers spent much of the intervening period looking for a private buyer of the business.
The poor condition of the games market and Virgin’s heavy operating losses likely impeded the company’s chances of going public. And while the games market has improved dramatically in the past year, Virgin’s losses continued at the same rate.
Gerard Klauer Mattison analyst Sean McGowan said the videogame market is now at a record level, and is expected to continue growing in the next couple of years.In the end, Spelling was unable to find a buyer willing to take the whole company. Electronic Arts already had its own distribution and wanted only Westwood and a separate development division at Virgin’s Irvine, Calif., facility, sources said.
Spelling firming up
While the amount raised from the sale is far short of what Spelling was expected to raise in a public offering, the company has already taken charges totaling $295 million covering both a writedown in its investment in Virgin and operating losses for the past 18 months. Spelling will not need to take any further writedowns, a spokeswoman said.
Spelling, 80% owned by Viacom, is now close to the end of a long restructuring, which has seen it exit its film and video rental distribution businesses and its Latin American cable channel. The company will use the cash raised from the sale to repay debt, while it continues to focus on its TV production business, which is doing better than ever.Spelling had debt of $262 million owed to Viacom at March 31, so this deal will dramatically reduce its debt load.
Spelling stock closed up 6¢ Monday to $7.