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Activist Investors Slam GameStop’s Board for Destroying $2.5 Billion in Shareholder Value

By Rich Duprey - May 22, 2020 at 10:01AM

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They also allege the board dumped their own shares while the video game retailer was buying back stock.

Hedge funds seeking to install two directors on the GameStop (GME 3.27%) board of directors allege that current members destroyed $2.5 billion in shareholder value over the past five years while causing the company to become larded with debt. 

Hestia Capital Partners and Permit Capital Enterprise Fund own 7.2% of the video game retailer's stock and they allege seven board members are responsible for GameStop taking on $825 million in debt to finance stock buybacks at around $30 a share, all the while selling their own stock for about $48 a share.

Now GameStop is scrambling to refinance some $420 million worth of that debt ahead of its March 2021 maturity date.

$100 bill on fire

Image source: Getty Images.

No skin in the game

While GameStop has been a surprise beneficiary of the COVID-19 stay-at-home orders, the hedge funds allege the video game retailer is in worse financial straits than it otherwise would be.

In a letter to shareholders, they say the current board initiated $1.3 billion in buybacks at $29.86 a share between 2012 and 2016, a time when one director sold $630,000 worth of stock and another sold a quarter of her holdings at $41.96 -- that's stock that was given to her, not bought. In all, directors sold over $64 million worth of stock during that time.

They also say the board is trying to take credit for selling Spring Mobile, when it was actually other investors that urged the company to do so, and it occurred only after pursuing a misguided acquisition of Telecom and Simply Mac.

The hedge funds say the seven directors have hand-picked their successors who don't have the experience needed to turn the company around.

 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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