Published , by Asif Khan
Published , by Asif Khan
GameStop shareholders were welcomed with a rude awakening this morning as the company has announced that they are no longer pursuing an acquisition. This comes just a few weeks after the stock jumped on rumors of a potential imminent sale of the struggling video game retailer.
Here's the full statement from GameStop Investor Relations:
GameStop Concludes Process to Pursue Sale of Company
GRAPEVINE, Texas, Jan. 29, 2019 (GLOBE NEWSWIRE) -- GameStop Corp. (NYSE: GME) today announced that its Board of Directors has concluded its previously announced efforts to pursue a sale of the company in conjunction with its broader review of strategic and financial alternatives.
In June 2018, GameStop’s Board, together with outside financial and legal advisors, commenced a review of a wide range of alternatives to enhance shareholder value. The Board undertook a comprehensive review process, including discussions with third parties regarding a potential sale of the company. GameStop’s Board has now terminated efforts to pursue a sale of the company due to the lack of available financing on terms that would be commercially acceptable to a prospective acquiror.
As part of the Board’s review process, as previously announced, the company sold its Spring Mobile business. This transaction was completed on January 16, 2019 and generated approximately $735 million in immediate cash proceeds. The Board continues to evaluate the optimal use of these proceeds, which could include reducing the company’s outstanding debt, funding share repurchases, reinvesting in core video game and collectibles businesses to drive growth, or a combination of these options.
Furthermore, the Board is continuing its search process to appoint a highly qualified, permanent CEO and is working with a leading executive search firm.
I have previously recommended buying GameStop's stock, and will likely be updating my rating for the stock when the next Game Trader analyst report comes out. The company has yet to find a replacement CEO, and still finds itself with a ton of secular headwinds. Competition from online and larger retailers combined with digital downloads of video games might be too much for GameStop to handle while pivoting to collectibles and exclusives. There are much larger and better run players in retail, and this board of directors has shown very little to inspire confidence in shareholders. While the stock appears cheap on a number of valuation metrics, it could very well be a value trap if revenues materially decline going forward.
GameStop (GME) shares are down 26% at the time this article, and sit at multiyear lows.
Full Disclosure:
At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:
Long GameStop via GME call options