GameStop adds $1.5B Bitcoin to its balance sheet

Video game retailer GameStop Corporation (GME) has completed a $1.5 billion convertible debt offering and will allocate a portion of the proceeds to purchasing Bitcoin. The company has been shutting down its retail locations globally to drive more cash into crypto investments.

According to an April 1 US Securities and Exchange Commission (SEC) Form 8-K filing, GameStop raised its initial $1.3 billion target after investors purchased an additional $200 million worth of notes. The company stated that the proceeds would be used for general corporate purposes, including the acquisition of Bitcoin.

“The company expects to use the net proceeds from the offering for general corporate purposes, including the acquisition of Bitcoin in a manner consistent with the Company’s Investment Policy,” the filing read.

GameStop takes up $1.5 billion from private debt offering

Per the SEC records, the GameStop notes will mature on April 1, 2030, and do not bear regular interest. Investors will have the option to convert their holdings into stock under specific conditions outlined in the company’s indenture agreement. 

The initial conversion rate is set at 33.4970 shares per $1,000 principal amount of notes, translating to a conversion price of approximately $29.85 per share, a 37.5% premium over the stock’s volume-weighted average price on March 27.

The company is not permitted to redeem the notes before April 6, 2028. After that date, it may choose to redeem all or part of the notes for cash if its stock price reaches at least 130% of the conversion price for at least 20 trading days within a 30-day period. The redemption price would be 100% of the principal amount plus any accrued special interest.

Moreover, note-holders have the right to require GameStop to repurchase their notes on April 3, 2028, at 100% of the principal amount, along with any unpaid special interest. If GameStop undergoes any corporate changes, like a merger or acquisition, investors could demand a repurchase of their notes under similar terms. 

The company’s decision to invest in crypto follows the footsteps of other corporate entities that have turned to BTC as a reserve asset, including Michael Saylor-led financial intelligence firm Strategy (formerly MicroStrategy). 

GameStop shares react mildly post-announcement

The capital infusion had some positive effect on GameStop shares, as the stock closed 1.34% higher at $22.61 on Tuesday, with a slight 0.5% increase after hours, according to Yahoo Finance data.

GameStop Shares chart. Source: Yahoo Finance.

The video game company experienced an uptick in share price on March 26, the day after it initially announced its Bitcoin investment plan. GME stock climbed nearly 12% to $28.36 but quickly reversed course, plummeting almost 24% to $21.68 the following day.

GameStop remains a heavily watched stock due to its involvement in the 2021 “meme stock” phenomenon, during which retail investors coordinated online to drive up its price. 

Store closures spell move away from retail sales to crypto

In other related news, GameStop has closed approximately 1,000 stores worldwide over the past year, according to the company’s latest filing, cited by CNN. 590 stores shut down in the United States, while over 330 locations closed across Europe. Nearly 50 stores in Canada and Australia also ceased operations. 

As of February 1, per an SEC Form 10-K filing, GameStop had 2,325 stores remaining in the US and 3,203 worldwide, down sharply from its peak of around 6,000 a decade ago. The company has stated that additional closures are expected in the coming months, although it has not specified which locations will be affected.

Retail industry analysts point to changing consumer habits as a major factor in GameStop’s struggles. More gamers are now inclined to use digital game downloads and streaming services. Outside purchasing consoles, the need for physical game stores is growing thinner by the day, so the company is jumping into other investments like Bitcoin.

Some see the move as an attempt to diversify revenue streams, while others question the rationale behind a video game retailer investing in crypto.

Neil Saunders, an analyst at GlobalData Retail, explained that GameStop’s Bitcoin investment could be interpreted as an “investment safety” measure rather than a growth strategy.

“The pivot to Bitcoin is really a defense against irrelevance,” Saunders said. “It’s an odd thing as it’s basically saying the strategy isn’t retail but to act as some kind of cryptocurrency investment vehicle.”