Game Maker Midway Said to Be for Sale

Midway Games Inc., best known for its “Mortal Kombat” series of fighting games, is battling for its own survival and is shopping itself to other video game publishers, sources said Friday.

Industry executives familiar with the situation said Midway had approached at least two firms about a possible deal.

But whether a merger or an acquisition will transpire is far from clear. Companies such as Santa Monica-based Activision Inc. and Redwood City, Calif.-based Electronic Arts Inc. are among the healthiest of the game publishers, but sources said neither was interested in buying Midway.

Midway executives didn’t return calls seeking comment.

The Chicago-based firm is scheduled to give guidance on its quarterly results Monday.

After 12 consecutive quarterly losses, Midway faces a crucial holiday season. Even with strong sales of its “Mortal Kombat: Deadly Alliance,” analysts are speculating about how long the company can survive as an independent entity.

“They’re doing OK, not great,” said UBS Warburg analyst Michael Wallace. “They have one game in the top 10, and that’s ‘Mortal Kombat.’ But all their other games did not perform well.”

Midway in November sold 345,000 copies of “Mortal Kombat,” helping the company generate $26.6 million in U.S. retail sales. But sales of its other key titles -- “Dr. Muto,” “Defender” and “Haven: Call of the King” -- fared poorly, with just 21,000 combined copies sold, according to Michael Pachter, an analyst at Wedbush Morgan Securities.

Compounding Midway’s difficulties is lackluster holiday spending, which forced several game firms this week to revise sales expectations downward.

Midway has faced near-death scenarios before. Founded as an arcade company in the 1950s, it was forced to phase out its dwindling arcade business in the mid-1990s and begin developing games for home game consoles.

The transition was costly because the arcade and home console markets are vastly different.

Arcades rely on quick-paced action games lasting only a few minutes. Home console games, by contrast, require hours of content.

After heavy investments into developing games for Sony Corp.’s PlayStation 2, Microsoft Corp.’s Xbox and Nintendo Co.’s GameCube, Midway this year fully shed its arcade business and faces its first year of revenue entirely based on consoles.

2002 has been difficult. While sales in the first nine months were up 55% to $111.7 million, losses continued to mount, hitting $29.1 million. As of Sept. 30, Midway had $64.7 million in cash.

Heightening the expectation that the company may be sold soon, Viacom Inc.’s chairman and chief executive, Sumner M. Redstone, has sustained his longtime personal investment in Midway stock and owns more than 18% of the company’s shares outstanding. His former wife, Phyllis, owns nearly 8% of the company.

Some say Redstone purchased the shares in hopes that he would reap a return in the event of a sale of the company.

On Friday, Midway shares closed at $4.35, down 15 cents, on the New York Stock Exchange, giving the company a valuation of $204 million.