Game Group, the high street computer game retailer that is unable to sell keenly awaited new games including Mass Effect 3, Mario Party 9 and Street Fighter X Tekken, has officially warned investors that it is on the brink of collapse.
The company said it had put itself up for sale but warned that "it is uncertain whether any of the solutions currently being explored by the board will be successful or will result in any value being attributed to the shares of the company."
Game desperately needs cash before the end of the month to pay its quarterly rent bill. If it fails to pay up it could be pushed into administration, putting 10,000 jobs at risk and wiping out any shareholder value. The warning sent the shares, which have already lost more than 95% of their value over the past year, crashing a further 65% to 1.2p, valuing the company at just £4.3m.
Ian Shepherd, the chief executive, has told senior staff to brace themselves for administration, according to trade magazine MCV.
The boss of Electronic Arts, one of the world's biggest game publishers, has said it "now looks like all but a certainty" that Game will go bust. At a conference in New York this weekend John Riccitiello, EA's chief executive, said: "It was a risk a month ago. Now it looks like a fact, although we're still praying for the lenders to get rational and keep them in business. You probably know who I'm talking about."
EA, the publisher of Mass Effects 3 the UK's best-selling game, is one of three leading game publishers to have withdrawn their latest hits from sale at Game over fears they will not be able to reclaim the stock if the company goes bust.
Capcom, the Californian company behind Street Fighter X Tekken and the Resident Evil games, have also refused to supply Game stores with their forthcoming games, and Nintendo has withdrawn its latest hit Mario Party 9 from Game's stores. Game has conceded it is involved in "ongoing discussions" with other suppliers also threatening to pull out.
Customers have taken to industry blogs, including Eurogamer, to offer the company their advice. "Game please remember that you will need to stock some games," said jrc1985. Vibroguy added: "I think it would be easier if you just listed what Game is actually stocking
In the glossy brochure sent to shareholders following its interim results, Game boasts: "Our vision is to be our customers' first choice for all of their gaming needs."
The company has appointed investment bank Rothschild to find a buyer, but it is likely to be difficult to find one before the looming deadline. Game's Spanish arm could attract the attention of US rival Gamestop, but its British, French and Australian divisions may be sold through a controversial pre-pack administration. Deloitte has already been in discussions with the firm about how to handle an insolvency. Game has 1,270 stores, some trading under the brand Gamestation, in nine European markets and Australia. There are 600 stores in the UK employing about 6,000 people.
The company, which has debts of about £70m, has already warned the City that it expects to report losses of about £18m for the year to the end of January.
Talk of its imminent demise could hasten Games's collapse as its 18m reward card holders rush to spend roughly £10m worth of loyalty points.
Game's woes have largely been caused by its failure to keep up with fast-moving internet retailers and supermarkets, who often sold titles as loss leaders to tempt people in to buy less popular older games.
The industry is also moving away from physical games to rapidly growing, and highly profitable, digital downloads. Instead of splashing out £40 on a video game CD for a £200 console, increasing numbers of consumers opt for 69p smartphone apps such as Angry Birds.
The launch of the new Wii U this year, and the mooted launch of an updated Microsoft Xbox 360 next year, should provide a fillip to the physical video games market. But, the new Microsoft Xbox will reportedly not have a disc drive meaning everything will have to be downloaded.
Game is still in talks with its lenders, led by Royal Bank of Scotland, which are allowing it to continue to trade after a renegotiation of its debts.
Peter Smedley, an analyst at Charles Stanley, said: "Barely five weeks since Game secured a lifeline from its lenders in return for commitment to an updated strategic plan, Game has confirmed speculation in the weekend press of how perilous its financial position has now become. Imminent collapse into administration is now a real possibility.
"The IMS [interim management statement] warns that the solutions being explored may not lead to any equity value left. There is simply too much uncertainty and considerable risk in a highly fluid situation for equity investors to become involved. We put our recommendation under review, with a view to suspending coverage.
"Game's financial position [it has debts of about £70m] highlighted in the 3 February IMS has become crushingly more pressing than was apparent. That has dramatically foreshortened the time Game has had to take radical action in a precipitously evolving situation."