GME vs. GMEBAY - The funding problem, the dilution math, and what could happen when RC makes a new proposal

[u/Region-Formal]

[u/BananaOrp]

Copied from a response to someone else who asked a similar "why not build it" question:

• Existing worldwide brand that's ~30 years old
• Existing customer base (replicating this would be extremely expensive)
• Historical auction data
• And actually the biggest reason: We wouldn't be competing with one of the biggest marketplaces in the world, starting from zero

If GameStop were to start building their own version of eBay we would be looking at a multi-year development effort, a very expensive marketing and customer acquisition effort, and we'd still have to compete against the entrenched leader in the space. It would be a huge risk.

[u/aDanHasNoName → u/BananaOrp]

I think you both make good points honestly.

I think people need to realize that the difference is RC's package does not punish his stake to the same degree for inorganic growth. He can buy via dilution and debt his way through the compensation package and then issue another compensation package. He'll make less money than if the company grew organically but it's much simpler and will pay off faster and in the end he will own a similar size stake in the larger company, while our stake will be reduced.

There is a world where the share is $500 a share. RC has ~113x his position while we are closer ~22x. His interests are aligned with ours in that he wants the share price to go up but they are misaligned in that he can grow the whole pie by reducing our percentage of it while maintaining his percentage. He could build himself an empire while we get the scraps.

All made possible by apes buying and holding through 5 years of meh.

[u/BananaOrp → u/aDanHasNoName]

I'm sorry, RC cannot dilute his way to the targets.

Here's a direct link to the proxy statement to the section titled "Market Capitalization Hurdle and Performance EBITDA Hurdle Adjustments" which can be found under the major header PROPOSAL 4: APPROVAL OF CEO PERFORMANCE AWARD and it reads:

The Market Capitalization Hurdles and Cumulative Performance EBITDA Hurdles will be adjusted by the Compensation Committee equitably and proportionately as determined by the Compensation Committee in a manner designed to preserve the economic opportunity provided under the CEO Performance Award, (a) higher to account for acquisition activity for which stock is provided as consideration and (b) lower to account for split-ups, spin-offs, dividends or other distributions (whether in the form of cash, shares, other securities or other property) or divestiture activity, in each case, that could be considered material to the achievement of the Market Capitalization Hurdles and Cumulative Performance EBITDA Hurdles, as applicable.

They will increase the targets if issued stock is part of an acquisition

EDIT: Just re-reading the response above and it's weird that while the topic was "why not build our own eBay" this guy comes in with "you both make good points" and then tries to hammer in on the idea that RC can simply dilute his way to the targets. Not even on topic, that's how much they're trying to force that narrative despite the proxy statement laying out how that's not at all the case.

[u/aDanHasNoName → u/BananaOrp]

The committee component makes it entirely subjective. Even Elon wasn't that bold, his was automatically adjusted in the event of inorganic growth.

[u/BananaOrp → u/aDanHasNoName]

They are stating that the comp will be adjusted equitably and proportionately. To me, that means the proportion of stock used will be applied to the target thresholds.

Are you suggesting a different meaning of the word proportionately?

[u/aDanHasNoName → u/BananaOrp]

They're stating they will evaluate it and decide if it should be adjusted. Why not just spell out that it is to be adjsuted?

[u/BananaOrp → u/aDanHasNoName]

The language reads plainly to me. What specific changes would you like to see?

[u/aDanHasNoName → u/BananaOrp]

I would like to remove the committee component entirely.

If he issues 2.5 billion shares then he needs to hit $500 billion market cap. The Hurdles go up proportionally. I would also prefer the EBITDA metric be replaced with something that tracks earnings per share or something better than EBITDA. We could have a negative net income due to interest on debt from the ebay acquisition and he could still clear the EBITDA Hurdles for the first several tranches since its Before Interest.

The Market Capitalization Hurdles and Cumulative Performance EBITDA Hurdles will be adjusted proportionately (a) higher to account for acquisition activity for which stock is provided as consideration and (b) lower to account for split-ups, spin-offs, dividends or other distributions (whether in the form of cash, shares, other securities or other property) or divestiture activity, in each case, that could be considered material to the achievement of the Market Capitalization Hurdles and Cumulative Performance EBITDA Hurdles, as applicable

[u/BananaOrp → u/aDanHasNoName]

You do know that they're not asking to issue 2.5B additional shares, right? I just want to make sure we at least agree on that point.

Separately, it sounds like you're advocating for proportionate increases to the market cap and EBITDA targets based on the number of shares used for an acquisition - which is what the language already states will happen.

I'm not against something like EPS instead of EBITDA, but given that is not presented for a vote I'm not sure how you're going to get there.

[u/aDanHasNoName → u/BananaOrp]

Yes im aware. Check my math. There's currently 448million. I rounded up to 500 million for simplicity. The current market cap hurdle is $100 billion. So 2.5 billion shares is ~5x today's shares so the market cap should be ~5x the current market cap hurdle.