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Technology Stocks : THQ,Inc. (THQI) -- Ignore unavailable to you. Want to Upgrade?

To: JGreg who wrote (7375)	7/30/1998 6:55:00 PM
From: Todd D. Wiener	Read Replies (1) \| Respond to of 14266

It seems like every time I take some days off, some big news emerges. I'm glad to see the stock rebound from yesterday, albeit on lower volume. I haven't spoken to THQ yet, and I don't expect to gain any valuable insight, due to SEC regulations. I do have some comments, so I'll respond publically to the many private messages I've received in the past couple of days. First of all, my opinion, FWIW, hasn't changed. The main reason is that I don't have any indication of the terms or intended uses of the offering. As far as I am concerned, THQI is still one of the best investments I see. Let's remember some things about debt offerings in light of THQ's financial condition. First, THQ is doing this deal from a position of strength, not weakness, as was the case with last year's equity offering. It's quite obvious (at least at this time), that THQ doesn't need the money for successful operations. It learned the hard way that an equity offering can be (Wed)botched. Growing companies generally finance growth with debt, while suffering companies usually float more stock. The reasons are simple: A growing company will be able to pay off the debt through time, without diluting the existing shareholders' stake; a suffering company (like MPRS) may prefer to offer equity, because debt needs to be serviced and repaid. On the other hand, offering stock tends to kill the price, unless the market has faith in the company's strength and outlook. THQ did a secondary last year, because it needed the cash to fund WCW development and pay off bank debt. Debt is not always bad. The best kind of debt is placed with investors, rather than banks. I see the current deal as a sign of maturity for THQ, and I am not concerned about the company's business or financial situation. I am somewhat surprised by the large figure being offered, though. Possible reasons for offering: 1. Acquisition and development of titles- I think that this is the most likely use of the proceeds. THQ needs money to develop titles, but that's not news. Even development for Dreamcast and Project X should require more cash than THQ's working capital. THQ may acquire assets in the form of titles and development studios from various companies. 2. General corporate purposes- I don't see this as being an important use for the proceeds, because THQ has enough working capital to support such activities. Some people have suggested that the proceeds will be used for marketing and advertising, but I seriously doubt it. That's what the cash and credit line are for. This debt offering suggests to me that something is in the works--something more than simple working capital requirements. 3. Buyouts- I think that THQ will not acquire AKLM or Sierra, as some have suggested. These companies are worth more than THQ can afford. Possible targets among public companies include TTWO and the controversial MPRS. TTWO would cost too much, though. Therefore, the MPRS rumor has some life. But I doubt that the shareholders will have much to cheer about. After all, MPRS' debt exceeds its equity value by a lot. I think that if THQ were to buy a company, it would be a private company, or perhaps a company in Japan or Europe (there are some good UK developers). As I have mentioned before, I think that an acquisition of Inland may be good. Other possible buys could be Cyberflix, or any of THQ's current outside developers. But it's also possible that THQ will invest in several companies, in order to take some control (like with Inland). It could also buy several small developers (Aramat and Nemicron come to mind, but I've no reason to expect any such deal with them). I don't have anything more to say, except that times of uncertainty call for shareholders to have faith in management. Farrell & Co. have done well so far, so we need to trust that the current deal is in the best interest of the company. Todd