Interplay Acquires Stake in British Rival

In a deal that could help Interplay Entertainment bolster its operations and return to profitability, the struggling Irvine-based developer of video games said Tuesday that it has acquired a 49.9% stake in British competitor Virgin Publishing.

Financial terms were not disclosed, but the transaction involves only a “minimal” amount of cash, said Brian Fargo, Interplay’s chief executive.

Interplay, which publishes such games as “Baldur’s Gate” and “Fallout 2,” also said it signed a deal with a unit of Virgin Publishing to sell Interplay’s titles in Europe and to market Virgin products in North America, South America and Japan.

“This lets us consolidate our two companies without any sort of corporate dilution,” Fargo said. “They need the product flow; we need the distribution. It’s a very clever deal.”

It also ends speculation about the fate of Virgin, whose status has been uncertain since last fall when Electronic Arts Inc., the world’s largest maker of computer games, acquired Virgin’s software development groups in Irvine and Las Vegas for $122.5 million.

Interplay shares fell 9 cents to close at $2.53 on Nasdaq.

The September acquisition, from Spelling Entertainment Group Inc., did not include Virgin’s European facilities because Electronic Arts already had its own distribution system in place.

A management team within Virgin’s European offices had bought the remainder of the Virgin holdings from Los Angeles-based Spelling about six weeks ago, Fargo said.

Analysts approved of the Interplay deal, saying it could help the company make the jump from a mid-size player to a top-tier game developer.

“It’s good that management is making an effort to change their business model, which needed some tweaking,” said Brett Hendrickson, a research analyst at the B. Riley & Co. brokerage firm in Los Angeles. “This is a good move, and it will give them a bigger slice of the pie in Europe. But they could be left with pie on their face if they get into trouble again.”

Market watchers had expected Interplay to turn a profit for its third quarter. But delays in shipments for a couple of its key games--”Messiah” and “Earthworm Jim 3”--caused the company to miss the crucial holiday season, helping to plunge the company $15.3 million into the red.