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UPDATE 2-THQ prevails in Jakks Pacific arbitration dispute
July 27, 2009 / 12:20 PM / 8 years ago

UPDATE 2-THQ prevails in Jakks Pacific arbitration dispute

* Jakks to get lower royalty rate

* Sees charge of about $22.5 mln in Q2

* Shares down 4 pct (Adds analyst comments, byline, updates share movement)

By Vidya Lakshmi

BANGALORE, July 27 (Reuters) - Jakks Pacific Inc (JAKK.O) said an arbitrator determined that the toymaker is entitled to a lower royalty rate than it had expected from the World Wrestling Entertainment Inc (WWE.N) video games sold through a joint venture with THQ Inc THQI.O.

Shares of Malibu, California-based Jakks fell 4 percent to $11.86, while those of THQ were down 11 cents at $8.49 Monday afternoon on Nasdaq.

Jakks gets only a 6 percent preferred return payment rate from the video games sold, rather than the 10 percent rate sought, the company said.

“When THQ sells the game, they get a percentage of the sale -- 6 percent means the rough break down of the profit is going to be 30 percent for Jakks and 70 percent for THQ,” Sterne, Agee & Leach analyst Arvind Bhatia told Reuters.

Wedbush Morgan Securities analyst Edward Woo said though the news was not entirely unexpected, it would hurt the company.

“This is going to be big news so they are likely to adjust their guidance, lower it , because their income is going to go down by about 15 cents a year,” Woo said.

The binding arbitration will result in Jakks’ JV partner THQ Inc having to pay it only about $34 million on account of the preferred return for the period from July 1, 2006, through March 31, 2009, Jakks said.

Jakks said it will reduce its receivables from THQ by the difference in the preferred return payment rate, or about $22.5 million, and take a related non-cash charge in the second quarter.

Separately, videogame maker THQ said it will report a one-time benefit of about $23 million during the second quarter ending Sept. 30 and reduce the accrued venture partner expense on its balance sheet by that amount.

Earlier this month, THQ had filed a suit disputing Jakks’ decision to extend the JV’s video-game license with WWE. (Editing by Anthony Kurian and Deepak Kannan)

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