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Technology Stocks : THQ,Inc. (THQI)
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To: Joe Casey who wrote (7303)7/28/1998 12:14:00 AM
From: Bleeker  Read Replies (3) of 14266
 
There goes the pristine balance sheet. On the one hand, given the
relatively low interest rate environment, issuing convertible bonds
or just bonds is a good source of funding. But let's not get caught
up in euphimisms. THQ is not AMZN nor will THQ's debt/equity
ratio look terribly good in a couple of weeks once it's saddled with
$60 million in convertible debt.

There is more to the issue than the bonds converting to equity in
seven years. The bonds will have to be serviced in the mean time &
interest paid on them during those seven years. Aloha anticipated
this a while ago I think. It's one reason why I am wary of EIDOS
right now since they have actually confirmed that they're on the
acquisition hunt.

Will THQ go on the acquisition prowl now? Will it incur more one-time
charges as a result? Will it acquire Microprose? No one knows for
certain if any of these will happen or not. But the convertibles do
introduce a new level of risk for the company and it could take time
for the stock to discount this uncertainty. Fortunately, the deal
will be closed rapidly compared to the secondary offering (Wedbush
was the underwriter of that deal. Who is handling this one?) But Joe
the next couple of weeks may be more painful than what you are
anticipating. The stock may go down in the next two weeks; the
question is by how much and what will THQ do with the money. One
thing we do know is that issuing bonds has a cost: approximately $3
million in interest payments a year.

Bleeker
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