THQ to Add Rainbow Studios to Ranks

THQ Inc., a video-game software publisher, plans to buy closely held game developer Rainbow Studios for about $57.4 million in stock, to add to its ranks of game programmers and artists.

THQ, publisher of games such as “Rugrats” and “WWF Smack Down,” will exchange 1 million shares for Rainbow Studios, based in Phoenix, the company said in a statement.

THQ, of Calabasas Hills, publishes games for computers and game systems including Sony Corp.’s PlayStation 2, Nintendo Co.’s GameCube and Microsoft Corp.’s Xbox. THQ, which frequently hires independent companies to develop titles, has been acquiring studios to beef up its own ability to make games.

“It’s adding more high-end development capacity to THQ,” said Miguel Iribarren, an analyst with Wedbush Morgan Securities, who rates THQ his top pick and doesn’t personally own the shares. “Rainbow is pretty well respected in the industry.”

THQ also acquired developers Volition Inc. in September 2000 and Pacific Coast Power & Light Co. in May 1999.

Game publishers reap more profit from internally developed games because they aren’t required to pay royalties to game studios, Iribarren said. Yet adding employees gives publishers less flexibility to cut costs should demand fall, he said.

THQ shares fell $1.39 on Wednesday to $57.41 on Nasdaq. The shares have more than doubled this year on investor optimism that sales will rise as new game systems from Nintendo and Sony gain in popularity. Xbox, and GameCube go on sale this month.

Rainbow Studios has 70 employees, according to its Web site. The company has developed games for publishers including Microsoft, Electronic Arts Inc. and Sony.

The company is currently developing games including “Matt Hoffman’s Pro BMX” for Activision Inc. and “Splashdown” for Infogrames Inc.