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Tiger urges Gamestop to review alternatives: CNBC
Posted on Wednesday, 16 May 2018 13:48
Gamestop shares were up 5.5 per cent by 08:18 local time in pre-market trading today after CNBC reported Tiger Management is urging the video game, consumer electronics, and wireless services retailer to weigh up options.
The company’s market value has been hammered in recent years as it has struggled to revive growth amid changing consumer tastes towards having content delivered online.
Gamestop’s efforts to turn around its fortunes have been hampered by management turmoil as several recent shake-ups have seen some major executives walking out the door.
In a letter seen by CNBC, Tiger said it views the recent top-level departures and “crisis of confidence as an unprecedented opportunity for the board to launch a strategic review”.
The process should “revive shareholder confidence in the sustainability” of the existing business model, but if the proposed review is rejected, the hedge fund would merely sell its equity and not turn into an activist investor.
Alternatives put forward range from cost-cutting measures, particularly administrative expenses, to the divestitures of resource-draining divisions such as Technology Brands and ThinkGreek.com.
Tiger called for Gamestop to stop paying down debt and instead buy back “deeply undervalued shares”, as well as halting acquisitions that have “resulted in a significant destruction” of stockholder capital.
As earnings are due to be released on 24th May, the passive investor said it hopes the retailer will announce a review just before this day or as part of the report.
In the financial year ended 3rd February 2018, Gamestop posted its second consecutive decline in net profit, to USD 34.70 million from USD 353.20 million in FY 2016 (FY 2015: USD 402.80 million).
Revenue rose to USD 9.22 billion from USD 8.61 billion year-on-year, supported by growth within the collectibles, new video game hardware and accessories categories.
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