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Atari U.S. operation files for bankruptcy

January 20, 2013|By Ben Fritz
  • The U.S. operations of pioneering video game company Atari Inc. is seeking to break free from French parent Atari S.A. and in the next few months find a buyer to take the company private.
The U.S. operations of pioneering video game company Atari Inc. is seeking… (Strong National Museum…)

The U.S. operations of iconic but long-troubled video game maker Atari have filed for bankruptcy in an effort to break free from their debt-laden French parent.

Atari Inc. and three of its affiliates filed petitions for Chapter 11 reorganization in U.S. Bankruptcy Court in New York late Sunday.

Its leaders hope to break the American business free from French parent Atari S.A. and in the next few months find a buyer to take the company private. They hope to grow a modest business focused on digital and mobile platforms, according to a knowledgeable person not authorized to discuss the matter publicly.

Although the 31-year-old brand is still known worldwide for its pioneering role with video games such as "Pong" and "Asteroids," Atari has been mired in financial problems for decades. Since the early 2000s it has been closely tied to French company Infogrames, which changed its name to Atari S.A. in 2003 and in 2008 acquired all the gaming pioneer's American assets.

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Chief Executive Jim Wilson has been with Atari Inc. since 2008, and in 2010 became CEO of the French parent. The New York-based executive has attempted to rebuild the company, which has just 40 employees in the U.S., by developing games for smartphones and the Web based on well-known properties -- among them a successful "greatest hits" compilation of arcade titles and an updated version of "Pong." He has also licensed the Atari logo for consumer products, a business that provides about 17% of the company's revenue.

There is evidence that the U.S. operation, which after the sale of other assets now makes up the bulk of Atari S.A.'s business, has been improving. The corporate parent has been profitable for the last two fiscal years, save for the effect of a money-losing French subsidiary, Eden Games, that has been up for sale. Before that, neither Atari S.A. nor Infogrames had been profitable for about a decade.

Still, its profits have been small ($11 million and $4 million, respectively, for the last two fiscal years) and revenue plummeted 34% in fiscal 2012 and 43% in fiscal 2011.

But the company's growth potential has been hampered by its near total reliance on London financial company BlueBay Asset Management for cash. A $28-million credit facility with BlueBay lapsed Dec. 31, leaving Atari without the resources to release games currently in the works, including a real-money gambling title titled "Atari Casino."

Efforts to recapitalize the corporation have been unsuccessful, in part because of its complex structure as essentially an American business with a French public stock listing.

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Shares in Atari S.A. have dropped in value from more than 11 Euros in 2008 to less than 1 Euro recently.

Atari Inc. has secured a commitment for $5.25 million dollars in debtor-in-possession financing to continue operations and release games. If Chapter 11 is successfully completed, the U.S. business could reemerge with its own resources and little or no debt to BlueBay.

It's not yet clear who might step up to buy Atari Inc., although Wilson will probably seek backers to help him keep control. It's also possible the company could be sold to another buyer, whole or in pieces.

Atari's remaining French businesses would probably seek legal protection to find a buyer or dissolve in that country.

Representatives for Atari S.A. and Bluebay did not immediately respond to requests for comment.

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