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 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agreement will expire automatically after three years, but it would also be terminated early if Section 382 were to be repealed.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.