Takeover Rumors Drive THQ Share Rally

Shares in major publisher THQ climbed 13 percent yesterday, amid rumors it could be the target of a takeover by firms such as Viacom or Time Warner. [UPDATE: Acquisition rumor also drives up EA shares.]
THQ shares climbed 13 percent yesterday amid a swirl of Wall Street buzz suggesting the UFC 2009: Undisputed publisher could be the target of a takeover by big media. According to the Wall Street Journal, rumors pegged Time Warner or Viacom as the most likely to make a grab for THQ. "We do think that both Time Warner and Viacom are interested in the gaming space," ThinkEquity analyst Atul Bagga told the paper. They're more than interested -- they're already present. Viacom is parent of highly successful Rock Band publisher MTV Games, while Time Warner subsidiary Warner Bros. not only has its own interactive entertainment division, but recently completed its acquisition of Mortal Kombat house Midway. That buy followed Warner's boost in its significant stake in Tomb Raider creator Eidos, an incremental buy-up that suggested it would try to acquire the publisher, a deal Square Enix ultimately accomplished. Odds don't favor Time Warner, at least, making another games biz buy so soon after Warner Bros.' closing of the Midway deal, especially given the frequency with which the company pegs its game company acquisition plans as "incremental." Viacom has long sustained a licensing relationship with THQ primarily via its Nickelodeon properties like SpongeBob Squarepants, but has recently begun boosting MTV Games' development staff internally while testing the waters of self-publishing Nickelodeon games, ahead of that deal's 2010 expiration. Further, publishers become acquisition targets most often thanks to strong internal intellectual properties -- Mortal Kombat made Midway attractive to Warner Bros. even while it was saddled with millions in debt, for example. Game industry analysts generally agree that the most attractive takeover target in the business is publisher Take-Two, owner of the Grand Theft Auto cash cow, a highly visible slate of development talent -- particularly in Rockstar -- and other desirable franchises like BioShock plus a suite of successful sports games. THQ, on the other hand, has received criticism from analysts in recent years due in part to its failure to establish a consistently resilient original IP, although thanks to the success of its fighting license titles like UFC, it's begun to see the fruits of recent cost-cutting measures, making an acquisition somewhat more feasible. Analyst Brian Sozzi told the WSJ that a company like Viacom or Time Warner would pay $12 to $15 per share on the high end for THQ, which was trading at $7.46 as of market close yesterday after the surge. Neither THQ, Time Warner nor Viacom have been willing to comment on the rumors. [UPDATE: Later on Wednesday, another rumor reared its head: a possible acquisition of Electronic Arts by Microsoft. The rumor, classified as "unsubstantiated chatter" by an options strategist in a Reuters report, drove EA share prices upward. One analyst told Reuters, "Our contacts just don't see Microsoft buying Electronic Arts, no synergies whatsoever, and also not Microsoft's corporate primary focus right now."

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