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GameStop’s $1 Billion Insurance Policy

On December 8 final yr GameStop filed a prospectus with the SEC describing an “Open Market Sale Settlement” the place it may promote as much as $100 million of inventory “on the market” which is actually within the stream of regular buying and selling exercise. The inventory’s shut earlier than the submitting on December 7 was $16.35.

With the inventory now buying and selling greater than 10 instances the shut on December 7 (it did fall initially this morning to a low of $164.81 however has recovered to round $183) the corporate updated the filing this morning in order that it may now promote as much as $1 billion in inventory however not more than 3.5 million shares. This can be a transfer that makes excellent sense as outlined in my article from early final week and the corporate wrote about in its 10-K filing on March 23.

These numbers present why it is smart

Throughout December final yr GameStop’s inventory primarily traded between $13 and $21. It closed the yr at $18.84 with a market cap of $1.28 billion.

Finally Thursday’s shut (the market was closed on Friday) the inventory was at $191.45 with a market cap of $13 billion, simply over 10 instances greater than the top of final yr though nothing has materially modified within the enterprise.

The corporate had $147 million in debt coming due this yr and had paid off primarily half of it, $73.2 million, on March 15 utilizing money readily available. It had $508 million in un-restricted money on January 30.

Of the remaining $73.5 million of debt, $48.6 million is owed to its French subsidiary, Micromania SAS, the place it pays 0% curiosity. This debt might be prolonged till 2025 however the rate of interest may enhance. The remaining $25 million is revolving credit score expiring in November 2022.

It additionally has $216.4 million in debt coming due in March 2023, simply two years away, that it’s paying an rate of interest of 10%. If it will probably pay this off early, so long as there aren’t any massive pre-payment penalties, the corporate may save $21.6 million in curiosity prices or nearly $0.31 in EPS. Notice that GameStop paid $34 million in curiosity value final yr.

Dilution affect is minimal

The inventory must commerce simply above $285 for the corporate to lift the utmost $1 billion on 3.5 million shares being offered, which the corporate views as unlikely. And even when it did the dilution affect could be minimal as GameStop has simply over 70 million shares excellent; 70,031,650 to be actual.

If the corporate needed to lift sufficient cash to repay the $216.4 million of debt costing it 10% per yr and never fear about having to refinance it, the dilution would hardly be observed. Even when the shares come beneath strain, however keep at $150 or greater, the dilution could be 2.1% or much less.

  • At $150: 1.44 million shares for two.1% dilution
  • At $160: 1.35 million shares for 1.9% dilution
  • At $170: 1.27 million shares for 1.8% dilution
  • At $180: 1.20 million shares for 1.7% dilution

For every $100 million in more money the corporate needs to lift the dilution could possibly be beneath 1%.

  • At $150: 667 thousand shares for 0.95% dilution
  • At $160: 625 thousand shares for 0.89% dilution
  • At $170: 588 thousand shares for 0.84% dilution
  • At $180: 556 thousand shares for 0.79% dilution

What the cash will likely be used for

Typical boilerplate for the “Use of Proceeds” which is, “We intend to make use of the online proceeds of this providing, if any, for working capital and common company functions and to additional strengthen our stability sheet, which can embody funding our transformation initiatives and product class enlargement efforts, the compensation, refinancing, redemption or repurchase of our present indebtedness, and capital expenditures or the satisfaction of our tax withholding obligations upon the vesting of shares of restricted inventory held by our government officers and different workers.”

What do you think?

Written by virajthari


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