After losing an estimated $500 million-plus, Sumner Redstone has finally rid himself of Midway Games.
The Viacom and CBS mogul sold his 87% stake in the troubled “Mortal Kombat” publisher over the weekend to private investor Mark Thomas for $100,000, along with the assumption of more than $150 million in debt.
The move comes with less than three weeks left before a Dec. 19 deadline for Redstone’s holding company National Amusements to repay $800 million in debt. Redstone has been locked in negotiations with a syndicate of lenders led by Bank of America about how he plans to restructure a total of $1.6 billion in debt.
The Midway shares, valued at less than a penny apiece, yielded little actual revenue but will be used to offset taxable gains from the sale of other National Amusements assets.
Redstone has vowed not to sell shares in Viacom and CBS, in which he retains a controlling interest and of which he remains chairman. His recent struggles intensified when he was forced earlier this fall to sell $233 million in nonvoting shares in the congloms in order to stay on favorable terms with lenders regarding National Amusements’ overall debt obligations.
Though he has owned a stake in Midway for more than a decade, Redstone moved to take control of Midway in mid-2005, promising to turn it into a “top-tier publisher.” Analysts estimate he has spent more than $500 million over the years accumulating his controlling stake.
However, Midway has consistently lost money since Redstone took control as investments in new technology didn’t yield benefits and major game releases were delayed and often sold poorly. A management shakeup earlier this year, after Redstone’s daughter Shari was named chair, has resulted in major cost cutting but no other benefits for the company’s bottom line.
Thomas, who is unknown in the videogame biz and couldn’t be reached, is taking on a major challenge in Midway despite having bought the company for almost no cash.
Publisher has some $70 million in debt to National Amusements, the theatrical exhib that also serves as an investment holding company for Redstone. Along with NAI’s loans, it has convertible notes totaling about $79 million that will have to be paid back by April, along with other long-term debt.
With very little cash on hand, Midway execs admitted on their most recent conference call that they’ll have to resolve liquidity issues quickly in order to pay back debt and stay in business. Though recent release “Mortal Kombat vs. DC Universe” was well received, company is expected to continue losing money for the foreseeable future.
It’s not clear how Thomas plans to keep Midway in business — whether he will invest new funds, take the company into bankruptcy or make another move.
Many observers had expected Redstone to try to sell Midway to another videogame publisher interested in its assets, especially franchises like “Mortal Kombat.” But with the recent financial collapse making acquisition deals unlikely and tightening the pressure on NAI to lighten its debt load, making a deal fast was likely of paramount importance.
Shares in Midway, Viacom and CBS all took a dive Monday on a brutal day of trading for all stocks. Midway fell 13% to 33¢, Viacom dropped 10% to $15.89, while CBS lost 11%, closing at $5.83.
(Dade Hayes in New York contributed to this report.)