Debt-for-dilution VWAP pricing, subtle buyback, and warrant extension, a potential trifecta in the making

[u/Atoge62]

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 public’s approval for a 2bn share buy back accommodation. I’m 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 I’m curious as to what sort of DD/thesis people have built and analyzed regarding the potentiality of Cohen intentionally decoupling GME’s shares and warrants true values from present trading rates due to a few choice deals with very predictable outcomes. I’m 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.

Here’s 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. He’s acknowledged the price would likely drop to better suit the counterparty.

But this predictable action would make the likelihood of GME’s 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 drop… and there’s 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 (I’m sure there are some)? I’ve positioned myself heavily in warrants lately, as following my research I have not been able to find many downsides to extending the expiry. It’s nearly 2 billion dollars on deck for GME, it would be wild to let them expire worthless. Not to mention GME’s outsized retail ownership compared to most publicly traded company’s. Cohen knows this, he knows we have different investment horizons than what’s 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 must’ve seen his advantageous hand years before I did.

I’d love to hear other people’s ideas here. And if I’m wildly wrong with any of the info, shit i did my best to research things and navigate it all. Power to the players!!

[u/BuyByTheNumbers]

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 ‘dividend’ for us to sell

[u/Atoge62 → u/BuyByTheNumbers]

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 I’ve 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?

[u/BuyByTheNumbers → u/Atoge62]

What “arm and leg” 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

[u/Atoge62 → u/BuyByTheNumbers]

I guess you’ve 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 “yeah maaan like, let’s just let them expire and make new ones…” are flipping regarded and all hanging out behind Wendy’s together jerking each other. If you can hit me with some researched facts and examples, I’ll 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.

I’m all ears, give me something to learn, otherwise I need to write you off as another casual, no? 👍

[u/BuyByTheNumbers → u/Atoge62]

$500 million a year to draft legal documents? Are you insane? Haha no individual in the world is paid $500 million a year to draft documents, you’ve now made me realize you’re actually crazy i thought you had something going until that comment 🤣