Is Midway Back?

Yesterday, Midway Games (NYSE:MWY) said it would raise $82.3 million by selling 11.35 million shares at $7.25 apiece. With just under 56 million shares outstanding, that would dilute Midway shareholders by about 20%. In response, the stock, which had been on a tear, took a 10% hit.

But this afternoon, the stock is up 13% to $8.20. Why? Because there's more intrigue.

Viacom (NYSE:VIA) Chairman Sumner Redstone, an intermittent buyer who now owns just less than 50% of Midway, said yesterday in a regulatory filing that he intended to increase his stake further and possibly take control of the company. And you can't blame him.

As Bill Mann pointed out in February, a revamped Midway may be on its way up -- the stock is up 65% already since then. Just last week, the company pointed to newly released Sony (NYSE:SNE) PlayStation 2 and Microsoft (NASDAQ:MSFT) Xbox hit The Suffering while raising its first-quarter revenue guidance 50% to $18 million. On top of that, the company just released a "reality" hip-hop basketball game, NBA Ballers, that is doing pretty well.

Midway hasn't recorded a profitable quarter in several years but is expected to do so some time in 2004. The company has even indicated that it might be interested in making an acquisition, which is particularly interesting after the endless rumors of Midway as acquisition target.

It's hard to know what to make of Redstone's new bout of buying. It may indicate a desire to have control of the acquisition process, or of Midway itself. At worst, it seems to imply confidence that Midway may be back.

Give us your take on the Video & PC Games discussion board.

Fool contributor Jeff Hwang owns none of the companies mentioned above.