- This proxy fight is unwarranted, as our Board has always prioritized directly soliciting stockholder feedback and has engaged constructively with Hestia and Permit – just last year, the Board added two directors under a cooperation agreement we reached with them to avoid a costly and distracting proxy battle
GameStopis executing on its Reboot Strategy and the Company’s prudent capital allocation has protected and enhanced stockholder value in these unprecedented times of market volatility
- We have recently refreshed our Board, adding an additional three new independent directors and comprehensively enhancing the Company’s corporate governance structure
- Hestia and Permit have nominated two candidates whose skillsets lack necessary expertise and who only represent the self-motivated interests of Hestia and Permit, which are misaligned with the long-term interests of other
GameStopstockholders and prevent the necessary knowledge transfer identified as a priority in our discussions with our FULL stockholder network.
The full text of the letter from
Dear GameStop Stockholders,
Thank you for your investment in our Company. You are being asked to make a critical decision at the Company’s 2020 Annual Meeting of Stockholders scheduled for
This proxy fight is unwarranted and ill-timed, as your Board has prioritized directly soliciting feedback from all of its stockholders and, in particular, has engaged constructively with Hestia and Permit. In
Despite these thoughtful and extensive efforts to proactively and comprehensively refresh your Board to support GameStop’s turnaround strategy while ensuring Board representation for stockholders, Hestia and Permit have refused to constructively engage with us, and instead decided to pursue a damaging and unnecessary proxy fight. Hestia and Permit have nominated two of their own candidates, whose skillsets not only lack the expertise that your
All evidence points to the conclusion that Hestia and Permit’s fight is poorly framed and ill-timed, and could directly result in stockholder value destruction.
To ensure the Company’s forward momentum continues uninterrupted, we encourage you to elect ALL of the GameStop’s Board nominees by voting on the enclosed BLUE proxy card.
Executing on the GameStop Reboot Strategy
Despite the near-term challenges presented by the COVID-19 pandemic, your Board and management team remain vigilant in executing our multi-year transformation initiative – GameStop Reboot – which we announced in
The four pillars of the GameStop Reboot plan are (i) Optimize the Core Business, (ii) Become the Social / Cultural Hub for Gaming, (iii) Build a Frictionless Digital Ecosystem, and (iv) Transform Vendor Partnerships. The following describes these four tenets of the GameStop Reboot plan and the Company’s respective achievements towards executing each component since announcing the strategy in
Optimize the Core Business: Optimize the core business by improving efficiency and effectiveness across the organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories and rationalizing the global store base.
- Delivered selling, general and administrative expense (“SG&A”) reduction of
$130.4 million, on an adjusted basis, for the year;*
- Decreased inventory by 31% - helping to drive a 160 basis point gross margin expansion - and reduced Accounts Payable and Other Liabilities by 64%, all compared to fiscal year 2018, leading to significant improvement in working capital and overall balance sheet strength; and
- Launched and executed an optimization plan for the global store base, de-densifying locations and delivering accretive profit transfer, and began the wind-down of underperforming operations in
Denmark, Finland, Norwayand Sweden.
Become the Social / Cultural Hub for Gaming: Embed the social and cultural hub of gaming across the
- Successfully implemented and tested an experiential products lab in the Tulsa market; and
- Enhanced the PowerUp loyalty program with new features, leading to a 280 basis point improvement in the conversion rate of transactions (including PowerUp enrollment).
Build a Frictionless Digital Ecosystem: Build compelling digital capabilities – including the recent relaunch of GameStop.com – to reach customers more broadly across the omnichannel platform and give them the full spectrum of content and access to products they desire.
- Provided access to the best digital content and products through the launch of an improved website and the expansion of omnichannel features such as “Buy Online,
Pick Up In Store,” which directly enabled significant sales plan recapture in U.S.stores that remained open for curbside pick-up during the COVID-19 pandemic; and
- Appointed a
Chief Digital Officerto further advance digital transformation activities.
Transform Vendor Partnerships: Transform our vendor and partner relationships to unlock additional high-margin revenue streams and optimize the lifetime value of every customer.
- Expanded product penetration in PC gaming and private label product categories;
- Optimized supply chain and vendor base to leverage scale and new categories; and
- Began testing and advancing digital revenue sharing with key partners.
*See below for definitions of non-GAAP financial measures used in this letter, including adjusted SG&A, reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measure, and information about how our management team uses such non-GAAP measures and why our management believes such non-GAAP financial measures provide useful information to investors.
In a short time, the Board and management team have made significant progress in executing this business transformation strategy.
Delivering Results to Stockholders
The Board and management team’s execution of our strategic plan is beginning to deliver tangible and material results to support the long-term success of the business and improve operational performance. The Company expects the continued execution of the GameStop Reboot plan will continue to deliver long-term value to stockholders. Fiscal year 2019 operational highlights include:
$62.3 millionin adjusted operating income* while exiting the year with approximately $500 millionin cash, despite a challenging sales environment.
- Significantly improved capital structure, deploying proceeds from the sale of non-core business units to reduce debt by
$401 millionand repurchase 38.1 million shares for $199 million, leveraging the Company’s market position as the pure-play, omnichannel leader in gaming.
- Optimized operations by improving inventory, with a 31% reduction at year-end; implemented initiatives to accelerate GameStop’s transformation, including enhancing digital, online, and experiential retail and improving its loyalty program; and continued to de-densify the store base.
- Began fiscal 2020 with increased financial flexibility and a continued focus on key priorities to optimize, stabilize and transform
GameStopto achieve sustainable and profitable long-term growth.
- Completed the fiscal nine-week period ended
April 4, 2020, improving total cash and liquidity to $772 million, including cash and available borrowings under the Company’s revolving line of credit.
- Despite having closed our
U.S.stores to the public on March 22nd due to the COVID-19 pandemic, have retained over 90%** of our planned sales volumes in the stores that are conducting curbside operations only, testifying to the strength of our enhanced omnichannel capabilities implemented as a part of our GameStop Reboot launched last fall.
*See below for definitions of non-GAAP financial measures used in this letter, including adjusted operating income, reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measure, and information about how our management team uses such non-GAAP measures and why our management believes such non-GAAP financial measures provide useful information to investors.
**All references to sales within this letter are calculated based on the Company’s internal data, which the Company uses to estimate revenue performance on a daily or weekly interval. Sales growth percentages represent the amount of absolute sales recovered relative the Company’s planned sales volumes during this period. The sales percentages in this letter are estimated, unaudited and subject to the closing of the fiscal quarter ending
Despite the significant results delivered so far, Hestia and Permit have recklessly chosen to run an unwarranted, costly and distracting proxy fight that, rather than improve the Company’s long-term prospects, will only distract the Company from its continued excellent execution of its strategic plan. Further, Hestia and Permit’s fight is poorly framed and ill-timed, testifying to the continued bad judgment of these two stockholders, which could directly result in stockholder value destruction.
Hestia and Permit’s unwarranted and costly proxy fight risks GameStop’s ability to continue to deliver quantifiable, progressive results to stockholders and presents real obstacles to stockholder value creation.
GameStop’s Prudent Capital Allocation Strategy vs. Hestia and Permit’s Short-Term Financial Engineering
Following the Company’s
- A Dutch auction tender offer and a series of open market purchases totaling approximately 38.1 million shares, at a weighted average cost of
$5.21per share, totaling a return of approximately $200 millionto stockholders throughout 2019
- Redemption of the Company’s
$350 millionunsecured bonds in early 2019
- Reduction of its current outstanding unsecured debt by
$51.8 million, bringing the 2019 fiscal year reduction in debt to just over $400 million.
Our capital allocation strategy has directly translated to GameStop’s present capacity to weather this unprecedented market disruption caused by the COVID-19 pandemic, serving our customers with progressively innovative capabilities as they adjust to increased time at home. Hestia and Permit’s approach would have proved ruinous and catastrophic for the Company and all of its stockholders.
In contrast, with our prescient capital allocation strategy, we have increased GameStop’s financial flexibility and strengthened our balance sheet, building sufficient cash and liquidity to navigate the COVID-19 pandemic and emerge as a strong and vibrant company.
Hestia and Permit’s short-sighted buyback demand demonstrates their lack of operational skills, insights and understanding of what it takes to operate a global business that supports the long-term interests of all
GameStop’s Proactive Board Refreshment and Management Succession
Hestia and Permit have commenced this proxy fight despite the Company’s effective execution of its strategic plan and capital allocation and its prior efforts to collaborate constructively with them. In
This year, after a thoughtful, comprehensive and professionally conducted search and assessment process, we announced the next phase of proactive Board refreshment process with the appointment on
Following the 2020 Annual Meeting, your Board will be comprised of ten directors:
- 9 out of 10 directors will be independent
- 7 out of 10 directors will have Board tenures of 2 years of less
We heard directly from our stockholders that they would appreciate a thorough onboarding and transfer of institutional knowledge from the longer-tenured directors to our new directors. Two current directors,
In addition to adding new talent and necessary expertise, your Board oversaw a comprehensive and rigorous management succession plan and refreshed GameStop’s executive team in 2019 with the following appointments:
George Sherman, Chief Executive Officer Jim Bell, Chief Financial Officer Chris Homeister, Chief Merchandising Officer Frank Hamlin, Chief Customer Officer
GameStop’s fresh and reinvigorated leadership team brings together a strong group of individuals with complementary experiences, broad and deep industry and operational expertise and proven records of successful execution. As demonstrated in a short period since their appointments, your new management team has delivered the positive operational results discussed above, including material improvement in working capital and balance sheet management. These accomplishments have provided the cash and liquidity sufficient, we believe, to enable us to navigate the COVID-19 related challenges successfully.
Over the last two years,
Hestia and Permit have neither proposed a compelling alternative turnaround strategy nor a plan to protect the long-term growth and value of the Company, and their choice to proceed with this proxy fight risks the Company’s ability to continue executing its turnaround strategy. All
Your Board is committed to acting in the best interests of ALL
The Choice is Clear- Please VOTE on the BLUE Proxy Card
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR ALL” OF THE BOARD’S 10 NOMINEES USING THE ENCLOSED BLUE PROXY CARD.
Vote your shares FOR ALL of the 10 director nominees proposed by our Board, via the Internet or telephone or by mail by promptly marking, signing and dating the enclosed BLUE proxy card and returning it in the enclosed postage-paid envelope.
Please do not return or otherwise vote any White proxy card sent to you by
No matter how many or how few shares you own, your vote is extremely important to ensuring that
We believe that GameStop’s highly qualified and experienced Board of Directors is best-positioned to oversee the continued successful execution of GameStop’s Reboot plan and deliver substantial value to all of our stockholders. On behalf of the Board of Directors and our management team, thank you for your continued support, interest and investment in
|If you have questions about how to vote your shares or need additional copies of the proxy materials, please call the firm assisting us with the solicitation of proxies:
INNISFREE M&A INCORPORATED
Stockholders may call:
1(877) 750-9501 (toll-free from the
+1(412) 232-3651 (from other countries)
IMPORTANT NOTE: Please simply discard any White proxy cards sent to you by
Only your latest-dated vote will count.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon management’s current beliefs, views, estimates and expectations, including as to the Company’s industry, business strategy, goals and expectations concerning its market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information, including expectations as to future operating profit improvement. Such statements include without limitation those about the Company’s expectations for fiscal 2020, future financial and operating results, projections, expectations and other statements that are not historical facts. All statements regarding targeted and expected benefits of our transformation, the GameStop Reboot plan, capital allocation, profit improvement and cost-savings initiatives, and expected fiscal 2020 results, are forward-looking statements. Forward-looking statements are subject to significant risks and uncertainties and actual developments, business decisions and results may differ materially from those reflected or described in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those reflected or described in the forward-looking statements: the uncertain impact, effects and results of pursuit of operating, strategic, financial and structural initiatives, including the GameStop Reboot strategic plan; volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital and credit; the impact of the COVID-19 outbreak on capital markets and our business; our inability to obtain sufficient quantities of product to meet consumer demand, including due to supply chain disruptions on account of trade restrictions, political instability, COVID-19, labor disturbances and product recalls; the timing of release and consumer demand for new and pre-owned products; our ability to continue to expand, and successfully open and operate new stores for our collectibles business; risks associated with achievement of anticipated financial and operating results from acquisitions; our ability to sustain and grow our console digital video game sales; our ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets we serve; our ability to assess and implement technologies in support of our omnichannel capabilities; the impact of goodwill and intangible asset impairments; cost reduction initiatives, including store closing costs; risks related to changes in, and our continued retention of, executives and other key personnel and our ability to attract and retain qualified employees in all areas of the organization; changes in consumer preferences and economic conditions; increased operating costs, including wages; disruptions to our information technology systems including but not limited to security breaches of systems protecting consumer and employee information or other types of cybercrimes or cybersecurity attacks; risks associated with international operations; increased competition and changing technology in the video game industry; changes in domestic or foreign laws and regulations that reduce consumer demand for, or increase prices of, our products or otherwise adversely affect our business; our effective tax rate and the factors affecting our effective tax rate, including changes in international, federal or state tax, trade and other laws and regulations; the costs and outcomes of legal proceedings and tax audits; our use of proceeds from the sale of our Spring Mobile business; and unexpected changes in the assumptions underlying our outlook for fiscal 2020. Additional factors that could cause our results to differ materially from those reflected or described in the forward-looking statements can be found in
Participants in the Solicitation
The directors, executive officers and certain other members of management and employees of the Company may be deemed “participants” in the solicitation of proxies from stockholders in connection with the matters to be considered at the Annual Meeting. Information regarding the persons who may, under the rules of the
As a supplement to our financial results presented in accordance with
|Severance and other||(27.6||)||(17.4||)|
|Adjusted Operating Income|
|Operating earnings (loss)||$||(399.6||)||$||(702.0||)|
|Property, equipment and other asset impairments||19.4||2.1|
|Severance and other||27.6||17.4|
|Adjusted operating income||$||62.3||$||331.3|
Source: GameStop Corporation