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Is GameStop Readying Itself for a Buyout?

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GameStop

The stock of video game and consumer electronics retailer GameStop (GME) is surging today. At 10:07 AM EST, GME was trading at $14.46, up 11.5% from its previous day’s closing price.

Let’s find out what could be driving today’s rally in the stock.

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Reports of a buyout

On January 3, a Wall Street Journal report said that GME was “working to restructure its business as it searches for its fifth chief executive in a little over a year.” The report added that the video game retailer “might be better off selling itself” to survive.

The report cited an unknown source suggesting that private equity companies Sycamore Partners and Apollo Global Management are interested in buying out GameStop and indicating the possibility of an announcement by mid-February.

The possibility of a GameStop buyout by a private equity company could be the primary reason for today’s rally in its stock.

Spring Mobile deal

In November 2018, GameStop sold its Spring Mobile business to Prime Communications for $700 million. The $700 million excludes the “transaction fees and [is] subject to customary working capital and indebtedness adjustments,” the company mentioned in a press release.

Spring Mobile has a wide network of 1,289 AT&T wireless stores. GME is expected to finalize the deal in its ongoing fourth quarter of fiscal 2018 upon securing the required regulatory approvals.

With the help of cash generated by selling Spring Mobile, GME expects to increase its focus on the video games and collectibles business.

The company also expects to use the money generated from the deal for other purposes, including outstanding debt reduction and share repurchases.

GME was already up 5.6% month-to-date before today’s price rally. Month-to-date, the S&P 500 Index has fallen 1.5%, while the NASDAQ Composite Index (QQQ) has fallen 1.8%. In comparison, NVIDIA (NVDA), Qualcomm (QCOM), and Electronic Arts (EA) have fallen 4.2%, 2.0%, and 0.7%, respectively.

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