GameStop’s stock climbed today by more than 20% after W.L. Ross & Co. — an activist investor — was granted a seat on the board. Ross wants to give Amazon’s disruption of video game retailing a run for its money. A decision on the seat could come within two weeks.
Ross, a longtime gaming investor whose flagship fund is called WL Ross & Co., typically buys stakes in weak, undervalued companies and aims to revamp them with cash and managerial savvy. He’s also been a large investor in Chinese electronics manufacturer Meituan Dianping. A run at GameStop, the world’s largest specialty retailer of video games, would expand Ross’s reach beyond retail.
Activists typically buy small stakes in companies and agitate for new board members or changes in strategy. Ross held more than 5.7 million shares of GameStop at the end of May, and his stake is worth about $187 million at today’s stock price. The question is whether Ross will succeed. GameStop has been suffering from declining sales and financial losses, as consumers shift to buying digital games over physical games. The company warned in January that it expected the shift to hurt earnings for the rest of this year.
A new round of blood in the management ranks, though, could help.
Ross said last week that he plans to nominate Daniel Aeschbacher, a former managing director at Goldman Sachs Group Inc., and Carl Hennig, the co-founder of data analytics firm Totonics Inc., to GameStop’s board. Aeschbacher is already on the board of other hedge funds Blackstone Group LP, Moore Capital Management and Fir Tree Partners. The two nominations may also set up a battle with Daniel Aeschbacher, whose own appointment to the board leaves four vacancies.
For now, GameStop shares jumped as much as 24% in premarket trading and were up 20.8% at $15.42 as of 9:50 a.m. in New York. The company’s shares are down 38% this year.
Another hedge fund, Najafi Cos., also said it had been granted the right to nominate an executive director to GameStop’s board. That puts the company one board seat short.
Despite the challenges, the company has been successful in recent years of dodging fate as traditional retail categories have begun to wane. It has diversified into the growing used-game business, which represents more than half of its sales. In addition, the company has been investing in its subscription business, which costs less than providing game rentals.
GameStop has said that investors are overreacting to the software sales slowdown. “With over 1,000 e-sports titles and multiple billion-dollar e-sports tournaments per year, video games are still a moneymaker,” the company said in a statement.
“I personally think that GameStop represents significant value,” said Kupchak, in a phone interview. “I think their assets should be valued for whatever they are worth.”