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

To: Don Westermeyer who wrote (7418)	8/3/1998 4:31:00 PM
From: Todd D. Wiener	Read Replies (2) \| Respond to of 14266

If $25 million was the proposed price tag for MPRS, the stock would be acquired at $1.25, after consideration of cash and debt. Perhaps the insiders wanted $35 million, for example ($3.00 per share), and THQ wouldn't bite. If this is true, I'm rather pleased at THQ's continued business sense. Let someone else deal with MPRS' problems. I still believe that the acquisition of some titles would be a good investment, and the price tag is likely to be reasonable. I spoke to company today, and although I couldn't get specifics on the PP, I am more confident in THQ's decision to take such steps. My comments and opinions, based on my conversation: Although $60 million is a lot for a balance sheet of THQ's size (compared to other companies with similar convertible offerings), no other company is growing at THQ's rate. Most other companies fail to generate cash and profitability with the consistency of THQ. Therefore, the debt can be seen as an effort to take a big step in growth, in order to ensure the continuation of THQ's current uptrend in growth. Although THQ stated that it could use the proceeds for general corporate purposes, the working capital is probably sufficient for any usual working capital requirements. Therefore, I believe even more than before that THQ is planning to acquire international distribution of some sort. The $60 million was not intended for the acquisition of MPRS, because any such negotiations would have had to been mentioned in the press release. THQ has repeatedly acknowledged the relatively poor performance in its international subsidiary. Although THQ Limited is now profitable, it does not seem to have the capabilities to fully exploit the present and future volume of titles that THQ intends to ship internationally. Therefore, it makes sense to complement the excellent domestic distribution system with equally strong international operations. In the next few weeks (hopefully before the split), THQ will issue a press release, and perhaps a conference call, detailing the offering and its intended use. Although companies typically don't announce the deal prior to completion, THQ acknowledges the stock's susceptibility to rumor. Therefore, in order to prevent any trading on non-public information, THQ decided to disclose it. THQ is not worried about the effect on the balance sheet. The company's resulting growth is expected to make the offering worth the interest payments and eventual dilution. THQ is not certain at this time how the convertibles will be accounted for, with respect to FASB 128 (diluted EPS). Obviously, there were other avenues of raising capital than a PP of converts, such as a common stock offering. But growing companies do better to use debt than equity financing. And THQ wanted to select a group of qualified institutions (such as a Fidelity) to invest in the company's debt. The possible list of investors are likely to be non-brokerage institutions who currently hold an equity position. At some point in the future, THQ will file a registration statement with the SEC, detailing the holders of the debt. Even though this financing step seems like a big deal for THQ right now, management has proven itself in most cases to be fully competent and capable of running a first-class company. I believe that once the offering has been explained, and once THQ begins to put the proceeds to work, the market will warm to the idea. I have faith in the company's outlook, and I still believe that the current price doesn't come close to the company's true value. For a list of possible distributor targets, see thq.com . It's just my opinion that THQ may acquire or invest in several distributors, some of which may be doing business with THQ already. Todd