When we chronicled the collapse of streaming game company OnLive, one source told us that the company's assets sold for a song. They claimed that investor Gary Lauder took ownership of the company for just $4 million. As it turns out, that number wasn't far off. Along with the San Jose Mercury News, we've obtained a copy of the formal letter that OnLive's assignee sent to the company's creditors. Here's what we've learned:
On August 14th, just three days before OnLive conducted mass layoffs, Gary Lauder formed a new company named OL2. Then, he spent just $4.8 million to acquire nearly all of OnLive's assets, all intellectual property, and even the name "OnLive" itself, effectively allowing the firm to remain in business with as few repercussions as possible. According to the document, OnLive's management believed they wouldn't be able to find any additional funding for the company or be able to sell the business as of August, and believed an Assignment for the Benefit of Creditors (ABC) would be better than going bankrupt. It certainly seems so.
What's harder to grasp is how OnLive's assets could be worth only $4.8 million in total, especially considering that rival Gaikai sold for $380 million just a few months ago. According to OnLive assignee Insolvency Services Group, though, that's the way it goes: the company claims to have hired independent third parties to value OnLive's assets, and decided that they weren't worth more to sell off piecemeal than if a single buyer could keep the company going. ISG explains:
"The Assignee concluded, in light of OnLive utilizing all of its remaining cash on hand to satisfy its final payroll obligations, that had the sale to the Buyer not taken place, the Assignee would have been left with inadequate capital to fund the significant costs to preserve and market OnLive’s patents and other intellectual property, thus greatly reducing expected recoveries essentially to those of a forced piecemeal auction."
At the time of sale, OnLive reportedly had $18.7 million in debt and "only days to live," so it seems that Lauder might just have been in the right place at the right time to secure a bargain.
That's the official story, anyhow. If OnLive's creditors disagree and believe that the company's property was worth more than that $4.8 million, they could band together to try to force OnLive into involuntary bankruptcy instead.
Take a look at the full document at our source links below.