Sumner Redstone and his holding companies have sold their shares in Midway Games Inc. for less than a penny each, capping the media mogul's aggressive investment in the troubled video game maker that ended up costing him hundreds of millions of dollars.
The $100,000 in proceeds from the sale of Redstone's 87.2% stake to investor Mark Thomas will not help pay down his family company's debt of $1.6 billion. The transaction was instead designed to produce a benefit for the company, National Amusements Inc., by reducing its taxable income in the current year.
According to a filing with the Securities and Exchange Commission, Redstone and his companies, National Amusements and Sumco Inc., sold their holdings in the Chicago-based game company Friday for $0.0012 per share.
At the time of the sale, Midway's stock closed at 38 cents a share, valuing Redstone's stake at $30.5 million. Over the years, Redstone poured hundred of millions of dollars into Midway even though the company has long been considered a laggard in the video game business.
Little is known about Thomas or his company, Acquisition Holdings Subsidiary, other than he apparently has had no prior dealings in the industry.
Peter Kolevzon, an attorney at Kramer Levin Naftalis & Frankel, which is representing Thomas in the transaction, said his client "is a private investor who wants to remain private." Kolevzon said Thomas intended to be a passive investor and did not plan to be on Midway's board or get involved in the management of the company.
"Redstone is giving Midway away," said Michael Pachter, an analyst with Wedbush Morgan Securities. "That's crazy."
Midway's shares lost 5 cents, or 13%, Monday to close at 33 cents, giving the company a valuation of $30.4 million.
At first blush, it would appear that Thomas is getting a $30-million company for $100,000. But there's more to it, Pachter said.
Midway owns several valuable game franchises, including Mortal Kombat and Blitz. It also had $10.5 million in cash and $21.6 million in receivables as of Sept. 30. As part of the deal, Thomas gets another asset: a $70-million debt that Midway once owed to Redstone's National Amusements. Midway's payments on that loan will now go to Thomas.
On the other hand, Midway has $150 million in outstanding loans, not including the $70 million it will owe Thomas. It also has a payroll of about 900 workers that it is struggling to meet.
