GameStop working with advisor in formal auction process
05 SEP 2018
Video game retailer GameStop [NYSE:GME] is working with Perella Weinberg to explore a sale, according to two sources familiar with the situation. Sycamore Partners and Apollo Global Management are the two main parties pursuing the company, those people and two additional sources said.
GameStop was having informal conversations with sponsors over the summer—Reuters reported in June that it had been approached by Sycamore—but is now running a formal auction, two of the sources said. The sale process is at an advanced stage, the second source added.
The publicly traded company has USD 630m in LTM EBITDA, making for a mid 3x EBITDA multiple based on its USD 1.43bn market cap and USD 818m in total debt. Its stock closed at USD 14.05 on Tuesday. The company is scheduled to release earnings figures on Thursday after market close.
Leverage expectations for a potential buyout are low, at around 2x-2.5x, two of the sources said. GameStop's debt comprises USD 350m of 5.5% senior notes due 2019 and USD 475m of 6.75% senior notes due 2021, according to its most recent filings.
In May, the company received a letter from shareholder Tiger Management calling for a strategic review on account of management changes and a decline in shareholder value.
“We view the recent management departures and crisis of confidence as an unprecedented opportunity for the board to launch a strategic review and revive shareholder confidence in the sustainability of the GameStop business model,” the Tiger letter said.
The hedge fund has been building up a stake in GameStop but had no plans of becoming a major activist shareholder, according to the same report. Bridgewater Associates also increased its stake in the company earlier this year.
GameStop’s stock has been declining for three years from a peak of USD 46 per share in October 2015. In its 1Q18 earnings, the company reported that new hardware sales had decreased by 7.8% while new software sales decreased by 10.3% year-over-year.
Amid the slide, there has been turnover in the company’s management team—chief executive Michael Mauler stepped down in May after only three months on the job. Later that month, the retailer appointed Shane Kim, a member of the board of directors and a former Microsoft executive, as interim CEO.
Mauler had replaced former CEO Paul Raines, who had led the company since 2010 until he took medical leave in November and died in March. Following Mauler’s appointment, GameStop also fired two tenured executives: chief operating officer Tony Bartel and executive vice president of strategic business and brand development, Michael Hogan.
GameStop’s USD 350m 5.5% senior unsecured notes due in 2019 traded yesterday (4 September) at 100.063 having traded at 100.5 in June, according to MarketAxess.
Its USD 475m 6.75% senior notes due 2021 last changed hands yesterday at 101 to yield 6.06%, having traded as high at 102.375 in early August.
GameStop, Perella Weinberg, Apollo and Sycamore did not respond to requests for comment.
GameStop was having informal conversations with sponsors over the summer—Reuters reported in June that it had been approached by Sycamore—but is now running a formal auction, two of the sources said. The sale process is at an advanced stage, the second source added.
The publicly traded company has USD 630m in LTM EBITDA, making for a mid 3x EBITDA multiple based on its USD 1.43bn market cap and USD 818m in total debt. Its stock closed at USD 14.05 on Tuesday. The company is scheduled to release earnings figures on Thursday after market close.
Leverage expectations for a potential buyout are low, at around 2x-2.5x, two of the sources said. GameStop's debt comprises USD 350m of 5.5% senior notes due 2019 and USD 475m of 6.75% senior notes due 2021, according to its most recent filings.
In May, the company received a letter from shareholder Tiger Management calling for a strategic review on account of management changes and a decline in shareholder value.
“We view the recent management departures and crisis of confidence as an unprecedented opportunity for the board to launch a strategic review and revive shareholder confidence in the sustainability of the GameStop business model,” the Tiger letter said.
The hedge fund has been building up a stake in GameStop but had no plans of becoming a major activist shareholder, according to the same report. Bridgewater Associates also increased its stake in the company earlier this year.
GameStop’s stock has been declining for three years from a peak of USD 46 per share in October 2015. In its 1Q18 earnings, the company reported that new hardware sales had decreased by 7.8% while new software sales decreased by 10.3% year-over-year.
Amid the slide, there has been turnover in the company’s management team—chief executive Michael Mauler stepped down in May after only three months on the job. Later that month, the retailer appointed Shane Kim, a member of the board of directors and a former Microsoft executive, as interim CEO.
Mauler had replaced former CEO Paul Raines, who had led the company since 2010 until he took medical leave in November and died in March. Following Mauler’s appointment, GameStop also fired two tenured executives: chief operating officer Tony Bartel and executive vice president of strategic business and brand development, Michael Hogan.
GameStop’s USD 350m 5.5% senior unsecured notes due in 2019 traded yesterday (4 September) at 100.063 having traded at 100.5 in June, according to MarketAxess.
Its USD 475m 6.75% senior notes due 2021 last changed hands yesterday at 101 to yield 6.06%, having traded as high at 102.375 in early August.
GameStop, Perella Weinberg, Apollo and Sycamore did not respond to requests for comment.