THQ, Volition, related entities file for bankruptcy; work expected to continue as normal

CHAMPAIGN — Employees of the Volition video-game studio in Champaign are expected to continue work as normal following the Chapter 11 bankruptcy filing of Volition and the studio's parent company, THQ Inc.

The California-based company made the filing Wednesday in U.S. Bankruptcy Court in Delaware, saying it will seek a sale of its business, including its studios and its games in development.

"THQ does not intend to reduce its workforce as a result of the filing, and employees will continue to work their usual schedules and receive normal compensation and benefits, pending customary court approval," the company stated in a release.

THQ said it plans to operate its business without interruption during the sale period, with the sales process expected to be complete in 30 days.

"All of the company's studios remain open, and all development teams continue," the release stated. "The company remains confident in its existing pipeline of games."

Volition employs about 200 people at its offices in the One Main Plaza building in downtown Champaign. The studio is best known for its Saints Row and Red Faction games.

Dan Cermak, the studio's general manager, referred all questions to The Abernathy McGregor Group, a consulting firm working with THQ.

In connection with the filing, THQ said it has entered into an asset purchase agreement with affiliates of Clearlake Capital Group who would acquire the assets of THQ's business, including its studios.

Clearlake has agreed to serve as a "stalking horse bidder" for a Section 363 sale process, which allows other interested parties to come forward with competing bids, the company said.

Clearlake has offered about $60 million in compensation for the purchase, including a new $10 million note for the benefit of THQ's creditors.

The company is asking the court to allow it to complete the sale in about 30 days.

"The sale and filing are necessary next steps to complete THQ's transformation and position the company for the future," said Brian Farrell, THQ's chairman and chief executive officer.

The filing allows THQ to shed certain obligations and emerge with the financial backing of a new owner with experience in software and technology.

Also filing for Chapter 11 on Wednesday were several related entities, including Volition Inc., Vigil Games Inc., THQ Digital Studios Phoenix Inc. and THQ Wireless Inc. The company's foreign operations, including those in Canada, were not included in the filings.

THQ has gotten commitments from Wells Fargo and Clearlake for debtor-in-possession financing of about $37.5 million, subject to court approval.

Farrell expressed confidence in THQ's pipeline of games, the strength of its studios and its "deep bench of talent."

"We are pleased to have attracted a strong financial partner for our business, and we hope to complete the sale swiftly to make the process as seamless as possible," he said.

Jason Rubin, who joined THQ as president in May, said the company will work with experienced investors to continue to "develop high-quality core games, create new franchise titles and drive demand through both traditional and digital channels."

Clearlake is a private investment firm that works with management teams to invest in businesses. Clearlake's founding principals have led more than 50 investments totaling more than $2.7 billion in various sectors.

Consumers and retailers should see no changes while THQ completes the sale, the company said.

As a result of the Chapter 11 filing, THQ expects to be notified by Nasdaq that the company's shares will be delisted from the exchange within nine calendar days of the notification.

The filing triggered a steep plunge in THQ's stock price. The stock, which closed at $1.38 a share on Tuesday, dropped by more than a dollar within two hours of the filing. A year ago, THQ stock — which trades under the THQI symbol — was selling for $8.70 a share.

The Los Angeles law firm of Gibson, Dunn & Crutcher is serving as THQ's legal counsel in the case.

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