A Serious Bid for Midway Games?

Which U.S. video-game company is Japanese software giant Sega Enterprises (SEGNY ) targeting? Sega has been up-front about plans to buy video properties in the U.S. and Europe. Enter Midway Games (MWY ), a designer and maker of software for video-game consoles and PCs. Midway is 29% owned by Viacom Chairman and CEO Sumner Redstone through his National Amusements. One industry exec from a rival company says Midway caught Sega's eye not only because of its hot brands, such as Mortal Kombat, but also because its stock has been pummeled. Trading at 8.12 on July 1, it tumbled to 3.85 on July 3. The reason: Midway lowered its second-quarter estimates. Analysts quickly cut their 2002 and 2003 forecasts. The stock has inched up since, to 4.52, partly on rumors about Sega.

One obstacle may be Redstone, who has bought at higher prices. A fund manager who owns shares but declines to be identified says Redstone may take the company private through a leveraged buyout--unless the price is right. But whispers are that Sega, if it makes an offer, will bid below Redstone's cost of 15 a share.

A rumor at the Big Board, where Midway trades, is that Sega might offer 7 to 8 a share. After all, analysts are down on Midway because of the missed estimates. Paul Kaump of investment outfit Dougherty, who doesn't own shares, rates Midway a sell: He dislikes the lowered estimates caused by a sales drop. Midway declined comment. Sega and Redstone couldn't be reached.

By Gene G. Marcial

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