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Technology Stocks : THQ,Inc. (THQI)
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To: Todd D. Wiener who wrote (2876)1/3/1998 8:53:00 PM
From: Sigmund  Read Replies (1) of 14266
 
Re Secondary:

1. It really is not a good idea to raise equity money for seasonal working capital requirements. The required return by equity investors is far higher than the cost of short-term debt. I assume that Farrell realizes this. If financial ratios are not a problem, I think they will stick to debt financing or factoring to meet working capital requirements.

2. Stock is probably better for making acquisitions than raising cash via a secondary. Using stock that is going up is preferable to raising cash which can be obtained only by discounting the stock. Those issued this new stock will sell it eventually, but this may be more easily absorbed than a secondary.

3. Taking Heliotrope public might make some sense and raising any capital Heliotrope needs directly within Heliotrope via an IPO or strategic alliance presents many advantages to THQI investors. If Heliotrope is successful, then THQI has a large albeit no longer a 100% interest in Heliotrope. If Heliotrope is not successful, it impacts THQI less if it stands on its own.

4. THQI pays no dividends so cash flow from profits is able to be invested in the business. If the projected rate of growth were such to require a secondary, this should not be considered negative to investors beyond possibly the shortest run. If the use of the funds raised was not exciting, then the secondary would be considered negative. That is why I think that if capital is required for PC game development, the wisest course of action is to raise this money separately from THQI i.e. through Heliotrope.

5. If we have confidence in THQI management, we should not be afraid of what they do with respect to managing their finances. Why should we be afraid that they might do something stupid? Even the past secondary which temporarily set back the stock appreciation process, turned out favorably for investors so why should we be concerned on this?
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