Thread by @purplequestions

GameStop has voluntarily slashed its own credit facility

Timeline:

November 30, 2023: Number of shares outstanding : 305,514,315

December 5, 2023: GS Board approves new investment policy, sole delegation to RC

From recent 10k,

February 3, 2024: GS began paying off the

French baguettes in Q4 2023, 28.5m remaining

February 3, 2024: GS had 500m line of credit (2026 Revolver)

February 3, 2023: GS had 100m remaining authorized to repurchase shares from 2019 program

February 4, 2024: GS Q1 and Fiscal Year begins

February 7, 2024: RC and LC make

tweets. RC has a positive perspective on share buybacks, LC mentions good word from a board meeting

March 5, 2024: RC is personally building a team of engineers at GS. Huh, GameStop, a **technology** company.

March 20, 2024: Number of shares outstanding : 305,873,200

Between November 30 and March 20, the TSO didn’t really change.

My theory is that GameStop has begun buying shares in two ways: 1. complete the share repurchase program authorized in 2019. This benefits shareholders by reducing share capital, allowing for a larger stake and

higher returns on potential dividends. This also takes them off the market, reducing the available shares to lend. Since GameStop knows its loyal shareholders will not lend, it strengthens the overall share ecosystem. These shares in the repurchase program could possibly be

retired, seen in past example of the first 2/3rd of the program in 2019. However, it’s also possible that they are moved into the Company Treasury. And 2, using the new and revised investment policy, GameStop will buy back shares from the market not to retire, but to instead

hold in the treasury.

Given the dates, I believe the share repurchase program of $100m remaining has concluded. It happened at the beginning of Q1 right as Ryan mentioned he wanted to do so. Importantly, I believe they did not retire the shares, but instead moved them into the

treasury. This is why even on March 20, they do not reflect any change in the TSO. However, going forward, GameStop will continue buying shares, not part of the repurchase program, which is complete, but in line with the new investment policy, revised March 21.

March 21, 2024: unanimous Board revision to investment policy (adding two members and designating to a committee).

March 22, 2024: GS voluntarily reduces its own line of credit from 500m to 250m, slashing it in half. I think this is the most ballsy thing about the 10-K that

hasn’t caught on just yet. Massive implications

Weekend

March 25, 2024: a look at the market, after months of maintaining a steady daily trading volume (4m) since mid-December, on March 25, Monday, the day after (trading day) the Company reduces it own line of credit, there’s

a significant increase, double from the day before. 10.4m. This continues the next few days.

March 26, 2024: GameStop reports earnings. Trading volume nearly doubles again, 17m.

March 27, 2024: Trading volume, 17m. LC talks about board disagreement with the organizational

leader. As if, the investment policy revision on March 21 came about from a disagreement. Not a bad thing, on the contrary, to Larry’s point.

And here it is. Boards love using the language **unanimous** whenever they can, it can project strength in unity. Larry however maintains

the perspective that a consistently unanimous board is suggestive of an ineffective board, reserved and restricted to voice dissent and disagreement.

Within the same paragraph, the first two sentences, it’s clearly seen that the Dec 5 policy was **not** unanimous, but the board

came together to agree and revise unanimously on March 21. This is important because together, they made the decision to slash the facility. “More important to be aligned on the financial principles than the financial plan”. Note the date on this LC tweet, the same day RC

tweets about a positive perspective regarding share repurchases.

LC talks about how not having board governance structure is a bad thing. I believe he was a possible dissenter in the Dec 5 policy in delegating power solely to RC. At the same time, I believe RC is sound and

listened to Larry and agreed to incorporate more structure and accountability, hence the revision and expansion of the committee.

March 28: Trading volume decreases, 8m, yet still double the previous average kept from mid December 2023. Larry talks about finding a different

lender. Or better yet, forego debt entirely.

It would make a whole lot of sense if Larry is one of the two added members to the committee, together with the above actions and statements, his expertise and experience in **investments**.

Together with the decision by the company

to voluntarily reduce its credit facility in half, and the initiative to begin repaying the French rolls, it would be logical to conclude that they would continue paying the French fries to “forego debt entirely”.

Note that once upon a time GameStop voluntarily removed their

own credit rating. Now, GameStop is voluntarily reducing its line of credit.

I believe these actions suggest that GameStop is preparing to get on the other side of something significant, upcoming, and imminent.

If GameStop is preparing for an acquisition, as has been their

intention, why on earth after revising the investment policy would they shoot their own foot off their leg and cut their credit facility in half, limiting themselves to what they could potentially invest in, or acquire?

Well, what if whatever target they have their sights on is

a mixed cash and stock deal, and they would like to lean more on stock than cash to effectuate such a deal and transaction?

It seems to me, judging by their **actions**, that GameStop not only has the target, but knows exactly what the deal will cost them, hence the reduction

on the credit facility: they don’t need the cash.

“Better yet, forego debt entirely”

I believe GameStop not only knows what the transaction for DK Butterfly will cost (cash/shares), but that they also have the additional targets and knowledge of what they will be acquiring

and absorbing to make GameStop an e-commerce and technology company. They would have to, if they reduced the credit facility - everything - all acquisitions and investments must have been accounted for **before** the reduction. Q4 and 10-K demonstrated the trajectory. No more

moves can be made in silence. From here on out, offensive positioning. Everything, all at once.

I’d like to note that everyone loves to attempt to dissect an RC tweet. Often underrated, even though Larry’s prose is more complex than cryptic, I believe his tweets are equally

telling of what’s happening behind the scenes. More often than not, his tweets are more on the nose than RC’s.

For example, October 19, just a few weeks after DK Butterfly was green-lit for a transaction to emerge from bankruptcy, it instead stays in a prolonged limbo phase

where the main task at hand was: **renegotiating** (tax claims), the basis of a Ch. 11 restructuring is the possibility and leeway of renegotiation. I think RC has been more impatient and fiery, while Larry maintains a strategic grip on focus and diligence in the process. Larry

recently asked what made good parings. They were made for each other.

A few articles articles make good points that Companies may have their own blackout standards, but there is 1. No federal mandate for blackouts, and 2. Plenty of options including the pre authorization of

these transactions, and importantly, again, 3. no mandate for disclosure.

It’s possible, that the first purchase was a steady, non incremental buy, every day beginning Q1 in February, when RC tweeted about repurchasing shares. Then, upon completion of the share repurchase

program, the broker was instructed to enact the second purchase program, for the treasury, at an accelerated or concentrated rate. These instructions could have been given a while back, so they are in the clear in terms of NPMI (or not, there’s no mandate). It’s interesting to

note that the TSO is last updated on March 20th, just before the new investment policy is revised. It’s possible the increase in volume is related to the second program for the treasury, accelerated according to the deal/transaction GameStop wanted to make, knowing exactly how

much cash and stock they would need for the deal, and when they would like to make the deal/when they needed their shares by. Hence the cutback on the credit facility. I doubt they would cut back the facility without assurance that they would be fine with the amount of shares

they had, so it’s very possible that instructions were given to the brokers well in advance. Possibly even as early as the Dec 5th policy update. The March 20 update doesn’t necessarily mean nothing had transpired or been prepared before.

It’s possible, that instructions were

given around February 7th, two sets: one to conclude the share repurchase program at a steady and set non incremental rate, and immediately concluding the first, the second program: to purchase shares for the treasury, not at a steady rate, but to meet a quota. Aka the amount

needed for the deal. This could explain the sudden significant increase in trading volume right after the investment policy is updated, as well as the voluntary reduction in the credit facility. See, they gave the TSO number March 20, which hadn’t changed since Nov 30, however as

of Feb 3, they had the 100m remaining authorized for the 2019 repurchase program. I believe the program concluded after Feb 3 and before March 20, it could be that the shares were maintained in the treasury, maintaining a clean TSO.

After all, Q4 and Fiscal Year ended Feb 3,

why are they bothering to include data up to March 22? Well, what if March 21, in the updated investment policy with pre authorized instruction to brokers, includes actions that after that date, may change the data significantly. It’s possible, that GS threw a bone, they did not

need to remind what the TSO was on March 20 (which was the same as Nov 30) (Feb 3, sure, but they didn’t have to go all the way out to March 20), they did not need to disclose the March 21 investment policy revision, and they did not need to include the March 22 decision to

reduce the credit facility. All these items could have been left for the next report, they chose to disclose ahead of time.

Toodles