GameStop Confirms It's Holding Talks With Potential Suitors

(Bloomberg) -- GameStop Corp., the long-ailing video-game retailer, confirmed that it’s holding deal talks with possible suitors, backing up a report that sent the stock soaring on Monday.

The company said on Tuesday that it’s in “exploratory discussions” with third parties about a potential transaction.

“There can be no assurance any agreement will result from these discussions,” the chain said in a one-paragraph statement. “GameStop does not intend to make any additional comments regarding these discussions unless and until it is appropriate to do so.”

GameStop kicked off its biggest rally in more than three years on Monday, following a Reuters report that it had drawn takeover interest from private equity firms. Sycamore Partners is one of the firms investigating a possible deal, the news service said. That sent the shares up 8.9 percent to close at $15.20, marking their biggest one-day gain since January 2015.

It’s possible that GameStop could fetch $20 a share if private equity buyers pursue a leveraged buyout, according to Credit Suisse Group AG analyst Seth Sigman. That’s based on a 4.5 multiple of its forward earnings before interest, taxes, depreciation and amortization -- a bit below what Staples Inc. received in a recent LBO.

A takeover would bring a payday to investors after a more than four-year stock slump. The Grapevine, Texas-based company has been struggling to remain relevant in an era when more and more gamers download their software, rather than buying it at a store.

The stock had been down 22 percent this year through the end of last week.

Tech Brands

A buyer could find ways of revamping the business, according to Matthew Breda, an analyst at Wedbush Securities Inc. A key goal will be lowering the debt load on its balance sheet, he said.

The company also could rethink its Tech Brands business -- an attempt to diversify away from video games. As part of the effort, the company acquired AT&T Inc. wireless stores and a reseller of Apple Inc. products.

“GameStop Corp.’s Tech Brands segment has not been meaningfully profitable, despite a very fast increase in store footprint,” said Breda in a phone interview. “I would think the buyers would be interested in winding down the Tech Brands business, refinancing or eliminating the company’s significant debt burden.”

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