Midway's future to play out in time: Chicago-based video game-maker faces another 3rd-quarter loss, warnings of delisting and a possible sale

Nov 22, 2008 (Chicago Tribune - McClatchy-Tribune Information Services via COMTEX) -- MWY | Quote | Chart | News | PowerRating -- 252The troubles keep piling up for Midway Games Inc.

The Chicago-based video game publisher, which hasn't posted a quarterly profit since the end of 2004, reported another loss for the third quarter last week. The company is trying to address liquidity issues amid a tough economy and reduced consumer spending. Midway's survival could hang in the balance as its majority shareholder, Sumner Redstone, struggles with debt problems across his media empire.

"How much value is left in essentially a few development studios, the 'Mortal Kombat' brand and a library of classic games?" asked Ed Woo, an analyst at Wedbush Morgan.

Midway's stock closed at 29 cents Friday, having tanked 90 percent this year. About a week ago, the New York Stock Exchange told Midway that it had breached a requirement that listed shares close at an average minimum of $1 for 30 consecutive trading days. The company has six months to fix the problem or face delisting.

No one at Midway was immediately available for comment.

Though Midway has looked to Hollywood tie-ins on some recent projects and is trying to build momentum around other titles, it remains best-known for the fighting-game mainstay "Mortal Kombat." This week, it released its latest iteration, "Mortal Kombat vs. DC Universe," as its big bet for the holiday season.

U.S. video game sales grew 8 percent in the third quarter from a year earlier, according to market research firm NPD Group. But Midway's chief executive was wary of the industry's outlook when he addressed analysts in the company's latest quarterly earnings call.

"The retail climate has gotten a little more difficult in the last couple of months," Matthew Booty said, adding that retailers are hesitant to put in large orders.

Despite the economy, Midway has had problems delivering games on time. One title, a driving game called "Wheelman" starring Vin Diesel, was pushed from this year to February.

Midway's coming titles look promising, said analyst Edward Williams of BMO Capital Markets. But there's little room for error in the video game market, which Williams described as "less forgiving of publishers that cannot consistently execute and also lack scale."

Booty, who replaced David Zucker as CEO in March, said the company made "tough but necessary decisions" to fix some shortcomings. It scrapped a large project at its studio in Austin, Texas; consolidated two California offices; and exited two undesirable license agreements.

Midway's retrenchment will take time to play out, and the company is projecting a net loss for the full year. It also has $79 million in convertible bonds due in April, a burden when revenue is tight and cash is needed to develop games.

Booty acknowledged the financial worries and said "our board and management are very actively engaged in addressing these issues right now."

Redstone, who owns an 87 percent stake in Midway, has poured money into the company the past few years. In February, Boston-based National Amusements, the Redstone family media holding company, extended a $90 million credit line to Midway. But his ability to keep doing this is in doubt.

In October, he was forced to sell shares in Viacom and CBS after their declining prices violated covenants in National's loan agreements. Redstone, who controls 80 percent of National, and his daughter, Shari, who owns the rest, are under pressure to make an $800 million payment by Dec. 19. Shari Redstone left Midway's board this month to focus on negotiating National's debt load.

Analysts say Midway could be put up for sale if problems at National force Redstone to sell assets. But Midway's share price and outlook don't make it an attractive acquisition target.

"I'm hopeful they can turn things around, but right now your guess is as good as mine," Woo said. "The biggest obstacle is who would buy them."

wawong@tribune.com

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