By Jessica DiNapoli, Svea Herbst-Bayliss and Joshua Franklin
(Reuters) – GameStop Corp. has decided not to use the Reddit-powered rally in its shares to sell hundreds of millions of dollars worth of shares due to regulatory restrictions, according to three people familiar with the US video game discussion.
The Grapevine, Texas-based company, was at the center of an unprecedented trading rage last month, while amateur investors on social media sites like Reddit organized to bet on Wall Street hedge funds shorting its shares.
While many heavily shortened stocks, from movie theater operator AMC Entertainment Holdings Inc to headphone maker Koss Corp, have also garnered huge accolades, “Gamestonk”, as it has been called by many online, including Tesla Inc. CEO Elon Musk become synonymous with the wave of trade speculation.
GameStop’s market capitalization rose from $ 1.4 billion on January 11 to a high of $ 33.7 billion on January 28. At that point, GameStop could have raised hundreds of millions of dollars through a share sale to pay off its $ 216 million debt pile. net cash by the end of October, and finance its conversion into a digital gaming service as sales in malls decline.
Yet GameStop never sold shares, the sources said, despite the fact that many Wall Street experts have been pushing for it. Although he may still sell shares in the coming weeks, the opportunity to raise hundreds of millions of dollars has now slipped when the rally turned in his shares. It now has a market value of $ 3.6 billion.
GameStop has been investigating the possibility of selling shares during the rally, the sources said. The company has already registered with the U.S. Securities and Exchange Commission (SEC) to sell $ 100 million worth of shares in December, an option it did not use, the sources added.
GameStop has decided that under U.S. financial regulations, it is restricted to the sale of shares because it has the most important information about its finances that was not yet available to the public, the sources said. The SEC requires companies to disclose such information when selling shares.
The information relates to the fiscal fourth quarter of GameStop, which ended in late January. By the time its shares rose in the second half of January, company executives had already compiled data and had a clear picture of what the quarter would look like, the sources said.
GameStop could continue with a share sale by releasing the provisional earnings. However, one source said that such a move, which was carried out for the sale of shares, has major logistical barriers and regulatory risks. The SEC said it would investigate how companies take advantage of trading volatility to sell stocks, and asked them to provide investors with more information on the potential risks.
A GameStop spokesman declined to comment. The SEC did not immediately respond to a request for comment.
“They were in their term for two and a half months when all this happened. It’s so deep in the term that from a legal and corporate governance perspective they would probably be required to provide high-level financial information in advance for the “And it can’t just be prepared in a week,” said David Erickson, a finance lecturer at the University of Pennsylvania’s Wharton School who was previously co-principal of global equity capital markets at Barclays. Plc.
AMC, American aircraft
Other companies in the midst of the Reddit frenzy, whose financial quarters ended at the end of December and have already informed investors of their latest financial performance, were able to sell shares when their shares rose at the end of January.
AMC, whose movie theater business was hurt by the pandemic, raised about $ 1.2 billion through debt and stock deals after its shares rose more than 700%.
American Airlines Group Inc., which also suffered from a fall in demand for flights, pulled the trigger from a plan to sell more than $ 1 billion worth of shares last month after its shares rose as much as 48%.
GameStop has lost market share to larger competitors, including Best Buy Co. Inc and Amazon.com Inc., as consumers buy video games online or through large retailers.
Analysts at Robert W. Baird & Co. wrote last month that the best outcome for GameStop shareholders would be for the company to close the majority of its physical stores and diversify into online businesses, including hosting tournaments and events.
One of GameStop’s largest shareholders, co-founder of online pet store Chewy Inc, Ryan Cohen, and two of his partners joined the company’s board in January. Last year, hedge funds Hestia Capital Partners and Permit Capital Enterprise Fund also won seats on the board.
(Reported by Jessica DiNapoli in New York, Svea Herbst-Bayliss in Boston and Joshua Franklin in Miami; edited by Greg Roumeliotis and Grant McCool)