Sumner Redstone’s sale of his controlling stake in a strangely-structured deal started a financial chain of events that has now led Midway Games to bankruptcy court. The company faced bond redemptions of $150 million next week, which it had no way to pay.
Midway management was blindsided when Redstone took a huge loss and sold his 87% stake in the company to Mark Thomas for less than $100,000, plus assumption of responsibility associated with some debt. That, however, proved to be a legal change of control and triggered Midway bondholders to demand full payment immediately of $150 million. The company had no way to come up with that money quickly. After failing to get the bondholders to stand down, Midway headed to bankruptcy court on Thursday.
“This was a difficult but necessary decision,” said Midway Chairman, President and CEO Matt Booty. “We have been focused on realigning our operations and improving our execution, and this filing will relieve the immediate pressure from our creditors and provide us time for an orderly exploration of our strategic alternatives. This Chapter 11 filing is the next logical step in an ongoing process to address our capital structure,” he added.
Midway said its Chapter 11 filing in US Bankruptcy Court in Delaware covers only the parent company and its US subsidiaries. The overseas operations are not affected.
RBR/TVBR observation: We still haven’t figured out whether Sumner Redstone and Mark Thomas were unaware of the potential consequences of their deal, or if there is some secret objective. Unless we’re missing something, they both come out losers as this goes to bankruptcy court.