Hedge Fund Looking for Changes at GameStop

After a costly fiscal write-down and sudden departure of the CEO at GameStop – the nation’s largest video game retailer – one major investor has seen enough.

Hedge fund group Tiger Management reportedly send a letter to the GameStop board asking for a strategic review of the company’s business model. The letter comes after shares of GameStop have fallen nearly 50% in the past year.

The company earlier this month reported a pre-announced $106 million fourth-quarter loss after incurring $406.5 million ($311 million after taxes) in asset impairment charges related to third-party (AT&T) mobile phone sales in its technology brands division.

The fiscal debacle followed termination of two senior executives – COO Tony Bartel and Michael Hogan, EVP of strategic business and brand development – seen by some observers as fall guys for the write-down.

Then CEO Michael Mauler, a longtime company executive, on May 11 abruptly announced his resignation just 90 days on the job. His position filled by interim CEO and co-founder Daniel DeMatteo.

“We view the recent management departures and crisis of confidence as an unprecedented opportunity for the board to launch a strategic review and revive shareholder confidence in the sustainability of the GameStop business model,” Tiger Management wrote in the letter, as reported by CNBC.

Specifically, the hedge fund would like GameStop to focus on core business brands, i.e. games; reduce costs and move away from ancillary businesses such as the “technology brands” unit that included the fiscal write-down.

Investor letters to the boards of publicly-traded companies aren’t unusual, and typically act merely as a reminder that investors are paying attention. Tiger said it had no intention of becoming an “activist” investor, but that if changes aren’t made, it would take its toys to another sandbox.

“To the extent that you fail to implement a turnaround plan, we merely intend to sell our shares and redeploy capital toward more attractive investment opportunities,” wrote Tiger.

The letter did cause a slight (1.9%) bump in GameStop shares in early morning trading. The company reports fiscal results later this month.

 

 

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