Microsoft's Gift: A Bungie Spin-Off (MSFT, ERTS, TTWO, ATVI, THQI)

Microsoft (NASDAQ:MSFT) is giving investors and the public a gift today.  The company has announced that Bungie Studios, the creators of Halo 3 and the Halo franchise, is going on the path to becoming an independent company.  It isn’t clear if this will ultimately be an IPO or a spin-off, but this will be a huge event.

Last night came the announcement that the company already saw Halo 3 generate $300 million in revenues in just the first week alone, although we noted that this will quite easily and quite rapidly reach $500 million.  It is when, not if.  We have noted how investors were looking at this, and now there is going to be a new way to look at it.  We have joked before about the XBOX franchise being spun-off to existing holders, but this will do for now.

Microsoft will retain an equity interest in Bungie, at the same time continuing its long-standing publishing agreement between Microsoft Game Studios and Bungie for the Microsoft-owned "Halo" intellectual property, as well as other future properties developed by Bungie.  Bungie Studios will remain in its current location in Kirkland, Wash.

We have already stated how the next generation games of Halo are already under conceptual development despite this being the "end the fight" version of the game. All you have to do is follow the money, it ALWAYS works.

Interestingly enough, Electronic Arts (NASDAQ:ERTS), THQ Inc. (NASDAQ:THQI),  Activision (NASDAQ:ATVI), and even Take-Two Interactive (NASDAQ:TTWO) are all trading higher.  This will end up becoming quite a unique situation for our readers of the SPECIAL SITUATION INVESTING NEWSLETTER as more data becomes available, and we eagerly look forward to providing special coverage of this special situation.

Jon C. Ogg
October 5, 2007

Jon Ogg produces the Special Situation Investing Newsletter and he does not own securities in the companies he covers.