is selling a studio to its parent company for $10.3 million in the latest restructuring effort by the struggling video game software publisher.
, which holds a majority stake in Atari, is purchasing Atari's Humongous Entertainment studio. Atari
announced in June that it would sever ties with Humongous, which specializes in kid-friendly sports titles such as
Included in the purchase price is $2 million that Atari has already committed to royalties to console makers, manufacturing costs and other payments. As part of the deal, Atari will have the right to distribute Humongous' titles in North America through March of next year.
The deal should be something of a shot in the arm for Atari, at least from a financial standpoint. The company has been
struggling with declining sales, poorly received titles and a weakening cash balance. Indeed, at the end of its most recent quarter, the company had just $5.8 million in cash on the books -- only about $1.3 million more than the company burned through in that quarter.
"We continue to execute our previously articulated strategic initiatives and strengthen Atari's financial position moving forward," said company CEO Bruno Bonnell in a statement. "This transaction substantially contributes to our resources for the launch of our largest titles in the holiday season and further enhances our capacity to develop new titles, ultimately enhancing shareholder value."
Humongous is the third studio that Atari has dropped this year. However, instead of selling, the company simply
shuttered the two other studios and had to take restructuring charges related to the closures.
Although Humongous had some popular titles, the sale allows Atari to cut loose a studio that has weighed heavily on its bottom line. Humongous posted a $4.2 operating loss on $12.6 million in sales last fiscal year, while Atari as a whole, including Humongous, earned $5.7 million on $395.2 million in sales.
The deal may raise some eyebrows on the Street. The price Infogrames is paying Atari puts a price-to-sales value on Humongous of less than 1, a relatively miserly valuation for a video game company, albeit one that is higher than the current price-to-sales value of Atari. As recently as fiscal 2003, Humongous posted an operating profit of $6.1 million on $32.9 million in sales.
After some early enthusiasm, investors seemed to shrug off the deal. In recent Friday trading Atari's stock was unchanged at $1.36. Earlier in the day, the company's shares traded up as much as 6 cents, or 4%, to $1.42.