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Is Midway worth $30 million?
Court documents suggest $30 million is a fair price for Midway. More likely, it’s a ceiling for the value of Mortal Kombat, and is unlikely to be achieved.
Last month, creditors kicked up a stink about the Midway bonus scheme, which appeared to pay staff bonuses that were 4x higher than the bonuses paid when Midway was not bankrupt and for deals that had already happened.
Now Variety reports on the new terms of the Midway bonus deal. The new bonus scheme offers $600,000 when an asset purchase deal is executed and a further $1 million when it closes. Additionally, key employees (excluding CEO Matt Boonty) get $75,000 added to their bonus pool for every $1 million above $30 million that they sell Midway for. (So if they sell it for $4o million, their bonus pool is $600,000 + $1,000,000 + (10 x $75,000) = $2,350,000.)
So is Midway worth that?
Variety suggests that the court and creditors came to that number because a) it’s the highest offer Midway has received so far and b) coincedentally, it’s the value of owner Mark Thomas’s secured loan, meaning that the other creditors won’t get a cent unless that $30 million figure is exceeded.
Owner Mark Thomas puts the boot in
Coming up with an independent valuation is tough, with so many issues:
- The company is under bankruptcy protection, which immediately decreases the value
- I don’t have access to meaningful forecasts
- The company had $23 million in cash at the end of December 2008, but Gamepolitics has found court documents from owner Mark Thomas which said that the company only has enough resources to continue trading until late June 2009 – although it’s worth pointing out that he was trying to get the court to ring fence his secured loan, so he would try to paint the worst possible picture in this document. (Kudos to Gamepolitics for the find.)
- By February 9, 2009, the company had only $16 million in cash left.
- Midway has no new releases scheduled in the first half of 2009. This means no major cash infusion. (Although, given the working capital requirements of putting out a major game – a minimum of $15 million in marketing, royalties and manufacturing costs – it’s unlikely that Midway could afford to put out a major game.)
- In 2008, Citigroup failed to find a buyer for the Midway stake owned by NAI (National Amusements, Inc, Sumner Redstone’s holding company)
- Lazard is apparently working to solicit “indications of interest from a number of strategic and financial buyers”.
- Some potential investors have been very negative. My favourite example, from a company that looked at Midway before Mark Thomas invested: “Mr. Thomas contacted Centerbridge, a $7.5 billion firm with experience in buying distressed companies, to see if it would be interested in doing the deal with him. After looking into Midway, Centerbridge informed Mr. Thomas that it was not interested in doing the deal, it was not worth its time and effort, and that in fact, NAI or Sumner Redstone would have to pay them to do the deal.”
So in essence, we have very limited information, and what information we do have suggests that Midway has been hawked around twice with no takers.
So what is Midway worth?
With so little information, it’s hard to say.
- I would value the publishing operations at zero or negative. It seems likely that Midway’s staff are demoralised, and without product to push, have nothing to focus on. Plus, in my experience, few big publishers want to acquire additional publishing staff: they are only interested in intellectual properties or development teams.
- The development teams have either been shut down or are threatening to leave.
- There will be some cash flowing from ongoing sales of Mortal Kombat vs DC Universe and other older titles, although potentially not enough to cover the cash outflows of staff salary and overheads.
- It’s not clear to me how much value there is in the non-Mortal Kombat titles (Area 51, Rampage, NBA, The Suffering)
So the main answer to the question “How much is Midway worth?” appears to be “How much is Mortal Kombat worth?”
There haven’t been many intellectual properties that changed hands with clear valuations attached. Two examples leap to mind.
The acquisition of Sega by Creative Assembly
Sega paid $30 million for Creative Assembly, publishers of the Total War series of games with sales of 2 million units in the two years prior to the acquisition.
Take Two acquires Civilization brand name
Take Two acquired the Civilization brand from Atari in November 2004 for $22.3 million. At the time, Civilization was a PC-only brand that had sold over 5 million units since inception and Atari sold the brand on its own (Take Two already had a relationship with Civilization developer Firaxis.)
Mortal Kombat has a long history, having been established in 1992 and has sold over 26 million units in its lifetime. Mortal Kombat vs DC Universe had shipped 1.8 million units by January of this year. Additionally, fighting games seem to enjoying a resurgence. .
So here is my conclusion:
- No sane publisher will touch Midway with its checkered and troubled past
- The public figure of $30 million seems like a ceiling for a valuation of Mortal Kombat, not a floor
So either a buyer emerges for Mortal Kombat before Midway goes properly bust. or, in my opinion, a more likely outcome is an unseemly squabble breaking out over Midway’s bankrupt carcass.