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updated 2/12/2009 9:10:23 PM ET 2009-02-13T02:10:23

Midway Games Inc. filed for bankruptcy protection Thursday because it does not expect to be able to pay back accelerated debt obligations stemming from media mogul Sumner Redstone's sale of a majority stake in the company.

Midway, best known for the "Mortal Kombat" video games, had about $281 million in debt and $167.5 million in assets as of Sept. 30, according to its bankruptcy filing.

In December, Redstone sold his majority stake in Midway — an interest of about 87.2 percent — to a company led by private investor Mark Thomas.

In a statement Thursday, Midway Chief Executive and President Matt Booty, who took the company's helm last month, called the bankruptcy filing a "difficult but necessary decision."

"We have been focused on realigning our operations and improving our execution, and this filing will relieve the immediate pressure from our creditors and provide us time for an orderly exploration of our strategic alternatives," he said in a statement.

The company announced in December it is laying off 25 percent of its work force, or about 180 people, and closing a studio in Austin, Texas, to cut costs.

Midway's filing came the same day Japanese video game maker Square Enix Co. offered to buy Britain's Eidos Interactive Ltd., the publisher of the "Tomb Raider" series, in a deal valued at 84.3 million pounds ($121.7 million). The offer signals there may well be market out there for video game companies even in the current economy.

"Midway's intellectual property compares quite favorably to Eidos," said Wedbush Morgan analyst Michael Pachter, adding that if a buyer is willing to pay such a price for Eidos "one would think" they'd be willing to pay for Midway.

It is in the best interest of Midway's creditors, the analyst added, to keep the company a going concern. Midway bankruptcy filing means it plans to keep operating while trying to reorganize its business.

Midway joins a long line of once-mighty video game publishers filing for bankruptcy. Acclaim Entertainment and 3DO Co., both publicly traded, filed for bankruptcy earlier this decade, but unlike Midway they liquidated their assets. Eidos, meanwhile, had managed to stay in business only to find a buyer Thursday.

Midway and its U.S. subsidiaries filed voluntary petitions in U.S. Bankruptcy Court for the District of Delaware. The company said the filing does not include its operations outside the U.S., and that they will continue to operate as normal.

The company is seeking several first-day motions so it can continue to operate normally.

AP Technology Writer Rachel Metz contributed to this story.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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