THQ moves to avoid 'change in ownership' restrictions

Publisher amends shareholder rights agreement to protect tax credits; move also makes hostile takeovers more difficult.

Last year, THQ stock jumped 15 percent in two days on rumors that it was being sized up by Viacom and Time Warner as a potential takeover target. While nothing has come of that stock market scuttlebutt, the Ultimate Fighting Championship publisher today took measures ensuring an acquisition would only come with management's blessing.

THQ's move makes any unwanted takeover of the company significantly more difficult.

THQ today adopted a poison pill shareholder rights agreement designed to protect some $374 million in tax credits and tax loss carryforwards. Under Section 382 of current tax law, when a company experiences a change in ownership, its ability to claim those credits is substantially limited. The law considers an ownership change to occur if a shareholder owning 5 percent or more of the company's stock increases their ownership by half over three years. (So an "ownership change" would occur if a shareholder with 30 percent of the company upped that stake to 45 percent, or if a shareholder of 5 percent upped that to 7.5 percent.)

The rights agreement will expire automatically after three years, but it would also be terminated early if Section 382 were to be repealed. While the rights agreement measures would not require a hostile takeover to take effect, they would make such a move difficult for an uninvited suitor. Under the new agreement, should any party acquire ownership of more than 5 percent of the company's shares (or should existing 5 percent shareholders substantially increase their holding in the company), current shareholders will receive a preferred stock purchase right for every share held as of today. Management can grant waivers to allow approved shareholders to acquire more than 5 percent of the company.

A wave of consolidation hit the game industry since the economic downturn started in 2008, with Square Enix picking up Eidos, Tecmo merging with Koei, Warner Bros. snagging Midway out of bankruptcy, Namco Bandai buying D3Publisher, ZeniMax purchasing id Software, and Electronic Arts laying claim to social game developer Playfish. Notable acquisitions in 2010 include Warner Bros.' pick up of Arkham Asylum developer Rocksteady Games, Sony's purchase of Little Big Planet studio Media Molecule, and Reliance Big Entertainment purchase of 50 percent of Codemasters.

[UPDATE]: This story originally ran without detail of the events that trigger the change-in-ownership restrictions. GameSpot regrets the oversight.

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Discussion

22 comments
Abecale
Abecale

Woow, big business words go waaayy over my head.

Sirbobislost
Sirbobislost

@ airsoftmanic yeah good solid 40k games..........shame about DoW2......

airsoftmanic
airsoftmanic

the THQ/Relic tag-team are the only ones making 40K games at the moment, and for good reason. i hope they stay independant to keep making solid 40K games.

rezpatriot
rezpatriot

Well aslong as they keep making good games I don't care.

ZedX-14Pilot
ZedX-14Pilot

I wouldn't call THQ's franchises 'strong' at all. Saint's Row IS a blatent GTA rip-off. I would describe their franchises at best to be 'average'. That said, more takeovers of publishers and studios IS bad for the games business. Everyone knows competition drives innovation and the development of new technology. I don't own one THQ game, but somebody out there seems to like them enough to keep buying their average videogames. Hopefully they can stay independent even if it is only to ensure a bit of competition. Albeit weak competition.

Decessus
Decessus

@thorughfire It doesn't matter why Smackdown vs. Raw sells so well. From THQ's perspective, it only matters that it does. Using your logic, you could argue that the Madden franchise isn't strong either because the only reason it sells so well is because it's the only game that has the NFL license.Saint's Row has an 8.2 average rating from critics and an 8.6 average rating from users here on Gamespot. Saint's Row 2 has an 8.3 and an 8.7. You may not personally like the games, but you can't argue that they aren't good games. Again though, it doesn't really matter. They sell and so from THQ's point of view, it's a strong franchise. Apparently strong enough that they are making a Saint's Row 3.

pete_merlin
pete_merlin

They gave me UFC, therefore I give them love

Damnation_6
Damnation_6

I want THQ to stay indepentant and grow thank you very much. I like THQ...never have problems with them...

metalisticpain
metalisticpain

Noooo leave THQ alone! i want 40K MMO how they imagined, i dont want it axed by some nub newbie management

Panic_Jester
Panic_Jester

@thorughfire *Smackdown Vs Raw is only selling strong because its a WWE video game* the same can be said about the ufc games -.^ i personally cant stand watching raw or smackdown but the games own in my option.

siasc289
siasc289

@thorughfire +1 on your comment

thorughfire
thorughfire

@Decessus Smackdown Vs Raw is only selling strong because its a WWE video game,The most well known wrestling company in the world. Saints Row has sold 5 million, Good for them. It doesnt make the games any good.

Decessus
Decessus

@thorughfire According to Wikipedia, the world wide sales of the Saints Row series is over five million. The Smackdown vs. Raw series has sold around 47 million. I would say that classifies them as strong series.

nate1222
nate1222

@lamprey263 I'm with you on that. THQ has some pretty good franchises. I still like Red Faction 2. I've played the Gamecube version (via Wii) and look forward to a download of the PC version. I'm a GOG nut, so I download alot through them. I'm also hoping FREE RADICAL brings Time Splitters 2 to GOG. They already have Second Sight.

thorughfire
thorughfire

@green_dominator Really? UFC and Red Faction are their only strong franchises. Saints Row is just a GTA rip off through and through and Smackdown vs Raw is so overrated its crazy.

lamprey263
lamprey263

What THQ should focus on is trying to determine if Viacom and Time Warner want access to any specific intellectual properties or company assets, like certain studios. Instead of being bought out maybe they should collaborate to work on some projects together somehow that would be mutually beneficial.

green_dominator
green_dominator

Good for THQ, I hope their quick thinking pays off.... They've got some strong franchises, Red Faction, UFC, Saints Row and WWE: Smackdown vs Raw....... any company who attempts to take over THQ or Take 2 is just an opportunist looking for a quick pay day.....