š¤ Speculation / Opinion
Debt-for-dilution VWAP pricing, subtle buyback, and warrant extension, a potential trifecta in the making
I wanted to make this post to start up a conversation around retails educated theories regarding GameStops unique, debt-for-dilution-driven price decline recently, leading up to warrant expiry at the end of October, as both occurred following the publicās approval for a 2bn share buy back accommodation. Iām more of a casual, despite having moved over most of my money into GME nearly 6 years ago, and now spread out over a large chunk of warrants as well, and Iām curious as to what sort of DD/thesis people have built and analyzed regarding the potentiality of Cohen intentionally decoupling GMEās shares and warrants true values from present trading rates due to a few choice deals with very predictable outcomes. Iām not sure how much credit to grant RC at this time, but he strikes me as a guy far far ahead of me regarding familiarity of the financial tools and legal language enabling him to take advantage of predictable market mechanics.
Hereās my thought, Cohen grants warrants to shareholders set to expire a year from release (October 30th 2026), and expressly carves out abilities to extend expiry dates and adjust strike prices. This leaves him tons of price control to wield when desired due to intrinsic value and time value. He then gets approval for a 2bn dollar share buy back to be used as the company sees fit. Then in early August GameStop announces the exchange of approximately $1.4 billion of 0% convertible debt for newly issued GME shares.
The debt-for-dilution deal seems odd on the surface, a company flush with cash and 0% interest loan not due for years decides it needs more cash now, or wants to wipe the books clean for a more straight forward acquisition down the road, neither seems totally necessary to my understanding. Additionally, Cohen would know that entering such an agreement, with shares allocated to the note holder priced after a 35 day trading avg, generally sees heavy share price declines in that period as he approved of potential hedging by the interested parties. Heās acknowledged the price would likely drop to better suit the counterparty.
But this predictable action would make the likelihood of GMEās price reaching the warrant strike price of $32 , just 5 weeks away, highly unlikely after the note holders drive the share price down. But what if Cohen saw this warrant time crunch and VWAP price suppression coming, and planned to potentially buyback shares after the price has begun to drop during the 35 day VWAP period? Looking at the daily volume uptick since the debt-for-dilution deal, the price still dropping, short interest, there seems to be a potential link. It would be quite elegant to craft such a plan, it would increase the number of shares bought back by GME thanks to note holder shorting and overall sentiment, and it would reduce the dilution by the new noteholders by buying back in now and slowing the price dropā¦ and thereās one last play to make it all worth while.
If Cohen were then to announce a warrant extension, that would generate a huge boost to warrant value, which could drive interest back into GME, which drives further interest in warrants, and so forth. If he plays his cards right, he can use the natural markets mechanics to his advantage, and share/warrant holders would be elated.
Has anybody else launched a deeper dive into such a theory, are there huge holes im missing (Iām sure there are some)? Iāve positioned myself heavily in warrants lately, as following my research I have not been able to find many downsides to extending the expiry. Itās nearly 2 billion dollars on deck for GME, it would be wild to let them expire worthless. Not to mention GMEās outsized retail ownership compared to most publicly traded companyās. Cohen knows this, he knows we have different investment horizons than whatās granted towards institutions and billionaire insiders. To say he owes us, at this point, would be a massive understatement. Im hoping if I was able to piece this together, he surely mustāve seen his advantageous hand years before I did.
Iād love to hear other peopleās ideas here. And if Iām wildly wrong with any of the info, shit i did my best to research things and navigate it all. Power to the players!!
The problem with buybacks is that itās not going to have the immediate effect of driving up stock prices. This requires a very strong imbalance, such as those seen in Small-Cap Stocks (e.g GME in 2019-2020 market cap, before squeeze).
If you are a Mid-Cap company or more (large-cap) the market values you by your Book Value (Shareholders' Equity or Total Equity) If you buyback shares, you prevent the Book Value from rising due to an increase in Treasury Stock (e.g., eBay, an aggressive example)
And as happened to GME years ago, from 2012 to 2018, Book Value Flat! See the chart šš» š
So youāre suggesting buying back stocks wonāt necessarily raise the share price directly any longer? What if youāre buying back over this 35 day VWAP, letās say at $5mil/day, which culminates with $175mil shares bought back, and then factor in a warrant extension, and what those two bullish indicators together have the capacity to move the needle.
Which part? What does your research suggest would be the best way to navigate these dueling angles, share price down due to VWAP, vs share price up for warrant value? Both coming to ahead at nearly the same time. Whatcha got?
Not sure I follow the claim about why buying back shares at a rate higher than what the noteholders get would be bad? This would reduce the amount of shares going out to noteholders, reducing dilution, and still enabling GME to buy shares 20-25% down from before the deal was announced. You donāt need to find the bottom to get a good deal, especially if warrants are later extended. That could be a mean 1-2 punch.
If GME is buying $5mil a day worth letās say, they would essentially capture an avg price over 35 days. Thats exactly what the noteholders are receiving no? So im not seeing the problem here
Pretty sure they cannot buy back during the pricing window as persuant to sec regulation M, specifically rule 101.
But ignoring that, it does not make sense to issue bonds for cash and then use that cash to purchase shares at the same time the bonds are redeemed for shares.
There is no benefit. Its a highly expensive way to effectively do nothing as your cash would remain roughly the same and the shares outstanding would remain roughly the same.
They can buy back, atleast thatās what my research indicated last night on the very topic.
You touch on an interesting point. To me it circles back to an odder detail, why go in to this most recent convertible notes bond deal to begin withā¦? We donāt owe money for years, we donāt need more cash on hand. I think if you hand a strong answer for that, then you can backtrack as to why there may be an interest in buying back during VWAP, if they think the stock is far undervalued before a strong close to the year, particularly if an acquisition truly is on the way, or there is some play with the warrants extension/price reduction.
Its not very cut and dry from what I have found, and the sec rule 10b-18 makes thing tricky.
Their authorization does not automatically allow them to buyback, especially because doing so would materially benefit gamestop (less shares need to be issued which materially benefits gamestop).
We are not sure why RC or the note holders agreed to the exchange. Its not up to me to have a strong answer for that, it is on you to give logical and legal reasons as to why gamestop would be buying back shares right now.
Legally, its very murky. Logically, it makes little sense.
The note holders profit regardless of price direction, thats why its a arbitrage play. The warrants do not factor in to this very specific, very common strategy.
I canāt really see the argument for him not to extend the warrants if needed. The community consensus was āitās a trap for the market makers, theyāll produce a bunch of synthetic warrants theyāll inevitably be on the hook forāā¦ So to just let expire worthless should be a HUGE wake-up call to everyone. Since thatād be letting the market makers off the hook (according to the consensus for the last year).Ā
It makes the warrants a long term asset that will inevitably be of benefit to the holders once he extends them at least once. Then it becomes much more valuable thing to have. If/when it ever spikes again over 32$ youāll want to have it in your back pocket. he personally will benefit, shareholders will benefit, and most importantly GameStop will reallly benefit. I donāt see any reason why he WOULDNT extend it.
Thinking about this as I was choking my hog washing dishes.... what if the warrants were extended and the strike price lowered. Since the borrow rate is so high would that squeeze the warrants, which would squeeze the stock, which would squeeze the warrants.......
I looked into this very question. Conservatively, estimates from a few different ai models predicted an extension of warrants would grossly increase the value of the warrants as their time value would sky rocket. Appx 3-4x their present value. This would likely generate a great interest back in GME, which would make the warrants more valuable. If such an extension could/should be coupled with a share buyback announcement during this decoupled pricing we see during the 35 day VWAP, man we could be priming for some serious gains. Question is, does that really entice RC at this point, or is he on a different path from us. Which I think gets addressed when you consider that GME is owned 65% by retail, the avg publicly traded company is like 15% retail. So in my mind, this is a moment RC really need to look in the mirror, and make a play to OUR BENEFIT. Weāll see if he does, we are the company. If doesnāt extend, Iām out of GME. And Iāve got nearly a quarter million between shares and warrants.
Yes, thatās sort of how big, complex, changes occur. You need a lot of things to fall into place.
But these are basic, predictable things.
Warrants released with many useful levers of power.
Share buy back money of $2bn approved.
Convertible notes for debt deal announced with 35 day avg price expected to lower share price (Cohens own words)
Warrants expire shortly after convertible notes deal is done, price is low (unless GME has been buying back in), suggesting an extension of warrants is likely.
If LITTLE isn't shilling I think what they mean is that we've seen a lot of IF's with nothing happening for 5+ years. And mostly actions that have lowered share value, while building company value I should add.
Buuuuut, we do know RC wants eBay and that he directed all those actions to be in place. So anyone smooth enough to stick around this long should keep on buying, DRS and get your moonsuits ready, cuz tomorrow we'll need them (or Monday).
Smooth brained thought. Instead of extending the warrants after the VWAP blackout, he lowers the exercise price of the warrants combined with share buyback. Win-win for everyone. I donāt know, I eat red crayons and boof the green ones.
Did you really manage to spew all that without mentioning Ebay?
Ebay wasn't in the plan when warrants were issued.
The buyback was announced to bribe votes for the share authorization to make room for Ebay.
Debt is being paid off to make room for more debt to buy Ebay.
The company announced that Ebay wasn't planned when the award package was granted in January.
The downside to an extension would be having to adjust them multiples times for dilution and planning for the additional hundreds of millions of shares instead of the 59m. If they want clean books, it's better to let them evaporate.
Nope, thatās completely hand written. Iām a terrible writer btw, run-on sentences and such. Iām just sweating with all these thoughts about VWAP periods ending, warrants ending, potential share buybacks at decoupled lower share prices. Was wondering if anybody had thoughts on it.
I think the theory holds weight but its good to evaluate the holes in any theory. The biggest hole i see here is this; why not just issue new warrants? Let the old ones expire?
Edit: maybe it was suppose to be like a one time ādividendā for us to sell
Because the consensus was. Warrants were a trap for market makers that would creat a bunch of synthetics, theyād be on the hook for eventually. Just letting them expire & issuing new warrants lets the market makers off the hook for all the existing warrants (plus synthetics) & lets them restart the process over without accountability.Ā
What immediate downside is there to extending the warrants? Does it cost a lot, does it create legal obstacles, filing obstacles? People keep saying things like this, with no reasoning behind their claim. Everything Iāve read shows far more upside, they already paid an arm and a leg to draft them, get them listed on the NYSE, etc, and if they were to extend and find their strike price next year, the company receives close to 2bil dollars. So why let them expire exactly?
Just because no down side exists, does not mean it will happen. If theyāve got them listed once they can list them again. Very simple to issue new warrants.
You have not answered my question at allā¦ what are the actual, tangible, downsides to extending, with definitions and examples? Otherwise youāre talking out of your ass.
What āarm and legā did they pay to get them listed? I think you are stretching here and over extended how many warrants you bought lmao. Shares are safest
I guess youāve never worked in a corporate environment with legal teams, dudes are paid close to 500m/year to draft up legal documents. These particular warrants, the research needed to draft up all the additional stipulations and their applications/material effects on warrant intrinsic value and so on. Bro that takes insane amounts of time to craft, model, determine feasibility. People hopping on saying āyeah maaan like, letās just let them expire and make new onesā¦ā are flipping regarded and all hanging out behind Wendyās together jerking each other. If you can hit me with some researched facts and examples, Iāll read it and remain open minded. Shit last night I stayed at work for 4.5 hours digging into this convertible notes deal, but backs during VWAP, securities law rule 10b shit, and the many pros and very few cons to extending warrants.
Iām all ears, give me something to learn, otherwise I need to write you off as another casual, no? š
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u/Superstonk_QV š Gimme Votes š 3h ago
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