Federal bankruptcy judge Mary Walrath sided with the creditors who objected to THQ’s proposed sale on the grounds that it didn’t give potential buyers enough time to offer rival bids or purchase different assets individually, Bloomberg reports. When the company initially filed for bankruptcy protection in December, it announced that Clearlake Capital was already poised to purchase nearly all of its assets for $60.5 million. The deal gave rival bidders less than a month -- until Wednesday -- to make their own offers. This plan, Walrath decided, was not enough time.
While THQ has become a grim sign of the harsh economic realities of AAA game production as it struggled to remain afloat throughout 2012, the company could still claim a number of respected franchises such as “Company of Heroes,” “Saint’s Row” and “Darksiders,” franchises that any number of prospectors were willing and eager to take out of the dying company’s hands.
“I have problems concluding that the pre-petition sale process was fulsome,” Walrath told lawyers at a hearing late last Friday, Bloomberg reports.
Walrather said that THQ “did not even put out to the public that it was for sale” until potential buyers had already signed nondisclosure agreements, denying other bidders a fair chance to make their own offers.
Still, THQ’s financial dilemmas were hardly a secret. The company barely avoided a Nasdaq delisting in late July, sparking successive rounds of buyout rumors as it continued to post dismal quarterly reports. But no clear bidder became evident until Clearlake Capital stepped up to adopt the company’s assets after its bankruptcy was already finalized.
Walrath said that about 10 prospective buyers contacted THQ after its bankruptcy filing became public -- a fact that indicated the company wasn’t trying hard enough to find additional bidders.
Warner Bros. Entertainment, a subsidiary of Time Warner (NYSE: TWX) that bought another struggling video game company (Midway Games) out of bankruptcy in 2009, told the court it was interested in evaluating THQ’s assets if given more time to place a proper bid. Creditors also took issue with the fact that THQ seemed to be pushing for a single purchase, rather than selling off various assets such as studios or game properties.
THQ was also seeking approval for a $37.5 million bankruptcy loan, to be paid off on Jan. 15 following the quick sale. The company said that it would not be able to pay off the added debt without a sale. The Clearlake purchase was thus an easy way to resolve THQ's current dilemma while keeping its surviving studios and game properties relatively intact -- something that THQ President Jason Rubin has assured fans he will do his best to maintain throughout the bankruptcy process.
“I am not convinced that we are under the gun to have a sale process by the 15th,” Walrath said. Instead, she scheduled another hearing for Monday.
THQ listed assets of $204.8 million and $248.1 million in debt.