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Atari Files For Chapter 11 To Spinoff and to Separate From French Parent Company and to Move to Mobile

Related: Atari, Gaming

Atari Inc., Atari Interactive Inc., Humongous, Inc. and California US Holdings, Inc. (collectively, the "Companies") filed petitions for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. With this move, the U.S.-based Atari operations seek to separate from the structural financial encumbrances of their French parent holding company, Atari S.A. (formerly Infogrames S.A.) and secure independent capital for future growth, primarily in the areas of digital and mobile games.

Within the next 90-120 days, the Companies expect to effectuate a sale of all, or substantially all, of their assets in a "sale free and clear" under section 363 of the Bankruptcy Code or to confirm plans of reorganization that accomplish substantially the same result. These assets include not only one of the most widely recognized brand logos, which is familiar to 90% of Americans, according to a recent survey, but also legendary game titles including Pong, Asteroids, Centipede, Missile Command, Battlezone and Tempest. Other recognized brands include Test Drive, Backyard Sports and Humongous.

Under current management, Atari Inc. has shifted its business from traditional retail games to digital games and licensing with an increased focus on developing mobile games based on some of Atari's most iconic and enduring franchises. With these moves, the company has added new revenue models, including digital download and advertising. As a result, Atari Inc. has become a growth engine for Atari S.A., which in turn has reported consecutive annual profits in 2011 and 2012.

The company has recently launched a slew of chart-topping titles for iOS and Android mobile platforms, including Atari Greatest Hits, Outlaw, Breakout and Asteroids Gunner. The company has previously announced upcoming mobile and tablet games based upon the popular Rollercoaster Tycoon franchise and Atari Casino.

The Chapter 11 process constitutes the most strategic option for Atari's U.S. operations, as they look to preserve their inherent value and unlock revenue potential unrealized while under the control of Atari S.A. During this period, the company expects to conduct its normal business operations.

The U.S. companies are also seeking approval to obtain $5.25 million in debtor-in-possession financing from one or more funds managed by Tenor Capital Management, a firm specializing in convertible arbitrage and special situations. Each unit has filed a number of traditional "first-day" pleadings, which are intended to minimize any disruption of their day-to-day operations.

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