GameStop $GME is a very interesting company and stock to look at right now. It is a cigar butt stock, currently trading under book value and cash value. With this new console cycle, GameStop has the possibility of generating more free cash flow than current market cap in the coming years. Moreover, 88% of the shares outstanding of GameStop are being shorted with 254% of float. This can lead to a short squeeze.
Ryan cohen, founder of Chewy $CHWY , recently invested in GameStop and I read an article on Seeking Alpha from Justin Dopierala that it is possible that he wants to take the company private. I have talked about this possibility before (even before the investment of Ryan Cohen) but did not really talk about it in detail.
Ryan Cohen has a very concentrated portfolio, after selling Chewy to Petsmart in 2017, he invested in just two companies, Apple $AAPL and Wells Fargo $WFC . Now, he's investing in GameStop with the intention of playing an active role. He already competed with Amazon $AMZN with Chewy, now he wants to do the same thing with GameStop.
The lawyer who filed the SEC filing for Ryan Cohen, Christopher P. Davis, is an expert on taking companies private. Why would Ryan Cohen hire him?
I mentioned before that taking the company private might avoid a short squeeze but this may no longer be the case as the short positions are now at a record high. If Ryan Cohen will take GameStop private it will need to be at least $20/share for all the other activist investors (Michael Burry, Hestia Capital and Permit Capital) to make a good profit. They bought at higher prices than him. Besides, it will be impossible for him to own 50% of the shares and will require their collaboration along with the board.
In June, there was a proxy fight on GameStop and about 10% of shares were recalled. In order to take the company private, all shares will need to be recalled and a short squeeze will be inevitable.
The best way for GameStop to succeed over the long term in my opinion, is to go private.
However, there will be some challenges such as financing (Wall Street hates this stock) and also the SEC might force GameStop to issue some shares to alleviate the pain of the short sellers if there's lack of liquidity in the shares.
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