It’s hitting the fan at gaming company: Might want to sniff around

It’s hitting the fan at gaming company: Might want to sniff around

Steve’s breakdown: GameStop’s shareholders are not big fans of the company’s performance lately so one would think the marketing department might be tasked to right the ship. Might as well get on the team!

GRAPEVINE, TX: GameStop Corp. is facing a renewed threat from a group of shareholders upset with the videogame retailer’s performance.

A group including Hestia Capital Partners LP and Permit Capital Enterprise Fund LP sent a letter to the Grapevine, Texas, company’s board, urging it to appoint a stockholder representative as a director.

The investors collectively own about 7.5% of GameStop’s shares, up from roughly 1.3% at this point last year. At that time, the group called for the company to refresh its board and boost stock buybacks, and threatened a proxy fight if they were rebuffed.

GameStop, which had just ended an effort to sell itself, went on to buy back stock—well above the current level—and name a new chief executive, and Hestia and Permit entered a cooperation agreement with the company in April. As part of the agreement, the company said it would appoint an independent director from among candidates nominated by the investor group. In return, the group agreed to refrain from publicly expressing concerns until Thursday.

In that period, the shares have lost more than half of their value as sales and revenue have fallen. GameStop shareholders have lost 85% of their investment in the past five years, the group wrote.

“If we cannot convince the board that adding a representative of a large stockholder is valuable, we are prepared to nominate candidates for election to the board at this year’s annual meeting,” said the letter, which the funds released publicly Thursday morning.

The company had no immediate comment.

GameStop’s window for director nominations is currently open.

Just this week, GameStop announced significant changes to its board, appointing three new independent directors and implementing fresh guidelines for director tenure and committee membership. The company also announced a new board chair and said four directors will step down this year and two more in 2021.

The investor group acknowledged in the letter that the appointments were a “step in the right direction,” but added that they still want a director with a “meaningful stake in the equity of GameStop.”

Permit, a suburban Philadelphia investment firm, and Hestia, its suburban Pittsburgh counterpart, don’t typically take on the role of activist investors.

Long-term holders of GameStop, they approached the company with their concerns last March after the stock fell from a high of more than $60 in 2007. Among their frustrations at the time: a need they saw for GameStop to cut costs and focus more on its core business.

GameStop stock, which traded then at around $12, closed Wednesday at $4.14, giving it a market capitalization of just $273 million.


Past reporting:

Reinventing a retail giant is going to take a whole new campaign

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