Comment by weard_beard
5 hours ago
GameStop has a standing approved agreement to issue up to a billion new shares. If you read the offer you will see it is 50% financed by GameStop stock.
They threw him a hardball today in his cnbc interview on this topic. $GME stock value would plummet short term, but the combined company would revalue much higher.
Current Gamestop shareholders would be diluted. They would own, proportionally, a much small slice of the combined company, but at a higher price point.
The framing of this as, "Ryan Cohen is diluting Gamestop shareholders in order to meet the terms of his enormous pay package" is disingenuous though, as his pay package is all stock. He's diluting himself too. He obviously has faith that, long term, the value of the combined company can substantially grow.
If his choice is between not getting paid due to not meeting targets, and getting paid in diluted stock, then it’s straightforward enough.
He has a massive stake in Gamestop outside of this pay package. The loss from diluting his massive accumulated position is not worth the bonus unless he thinks the price will recover long term.
>He obviously has faith that, long term, the value of the combined company can substantially grow.
Depends how much of them he has before and he will after, it might still be worth diluting if difference is vast.
Also, why long term if short term could also do?
My take? The strategy is like a contractor fixing up houses. GameStop was the crappiest house on the block. He’s fixed it up and is using it as collateral to take out a loan and buy the dilapidated mansion next door (eBay). He’ll keep going until he’s gentrified the whole neighborhood using the value of the current business as collateral to buy the next. He wants to sell only when the value of the entire gentrified neighborhood reflects market rate for the work he's put in.
The only thing that Cohen has done is shut down stores and cut costs massively at the expensive of revenue. He hasn't really fixed anything, he is just managing their demise. All of his strategic initiatives like expansion of e-commerce or an NFT platform were complete disasters that had to be wound down. The only reason the company is even showing a profit is because they repeatedly diluted shareholders to raise cash and then re-invested that money into Treasuries. Basically, if you are buying GME stock, you are getting an expensive fixed income wrapper.
Buying EBAY would be a bad deal for pretty much everyone involved. GME shareholders get diluted to buy EBAY for way too much money. EBAY shareholders get paid in vastly overvalued GME shares. And the entire thing would be managed by some guy whose only strategic idea is to cut costs. The only one who would benefit is Cohen, because it would create a sufficiently liquid market for him to sell his stake, something that is not currently possible in GME.
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