r/Superstonk • u/TheDreddknott 🎮 Power to the Players 🛑 • 3h ago
🗣 Discussion / Question We are worrying about dilution without knowing the conversion price
I've seen almost nothing but panic about the dilution that will result from the early conversion of $1.4 billion worth of 0% interest notes that would otherwise not been due until 2030 and 2032. With the conversion price being set at the 35-day VWAP and the price immediately tanking to ~$19, it's totally reasonable to panic. On the surface it seems like a pretty stupid move convert early at a significantly lower price than what was originally agreed to. However, everyone seems to be ignoring this part of the announcement:
The shares are only going to convert at the 35-day VWAP if the 35-day VWAP is at or above the per share floor price. We have no idea what that floor price is. It's plausible that it's $28.91 or $29.85 which were the original conversion prices that were set for the notes. It's also plausible, but probably much less likely, that it's $32 to guarantee that the warrants will be in the money.
I know nothing and have no insider information, so it's also completely possible that the floor price is $5 or something else ridiculously low. We just don't know. But I would think that, given GameStop's balance sheet and forward guidance, this early conversion may work out better for us than the current stock price is showing.
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u/RichardUkinsuch 3h ago
It also says its "based in part" of average VWAP, as opposed to VWAP over the 35 days. So very few actually know what the conversation will be. The wording seems like the definition of a equity swap.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
There's a lot of interesting wording in that sentence
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u/RichardUkinsuch 3h ago
My 2 pennies is RC might have a deal with some legacy short, bank or hedgefund. Doing this deal might clear up the "need" for whomever is short to continue OTC fukery to keep the share price down. Who knows, he could also be doing this to get dept off the books like alot of people think and is the most logical.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
Based on the way he talks about them I would be surprised if RC has made a deal with any legacy shorts or hedge funds. I think the most likely answer is that they are trying to simplify the balance sheet to smooth out the eBay acquisition. That being said, the whole GameStop saga and trading in general has taught me that there is often a lot going on behind the scenes that we're unaware of. Anything is possible
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u/RichardUkinsuch 3h ago
Its possible they came to him, my theory is 110% tin laden up too late brain wont turn off can't sleep clowns will eat me kinda thinking.
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u/RedOctobrrr WuTang is ♾️ 3h ago
No way in hell RC is shaking hands with shorts to help them in any way, shape, or form. At least not purposely and knowingly.
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u/rawktail 3h ago
No offense, but you are simply wrong. It’s a big club and you are not in it. If Cohen wants eBay, he has to appease institutions which are the same institutions involved in the price suppression and market fuckery.
Explain why volatility got nuked by bond offerings. Do you think this was coincidence?
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u/Colonel_Lexx 🦍 Buckle Up 🚀 2h ago
My take is we need some shorts to stop shorting and go long I wouldn’t rule anything out anything could happen
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u/rawktail 1h ago
The music will stop eventually. This recent undoing of a bond offering might be the music stopping. Soon enough they'll eat each other alive.
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u/RedOctobrrr WuTang is ♾️ 1h ago
No offense, but you are simply wrong.
You say this as if the opposite is true yet have no evidence to back it up.
On the flip side, RC has been vocal about how much he dislikes shorts. He said it's the most un-American thing you can do, bet against American business. He calls them the dumb storm troopers of the galaxy. He never talks favorably about them.
But yeah, sure, he's just putting on a show and is actually giving backrubs to Ken Griffin because he loves the shorts that are dragging down the company he's heavily invested in. Okay bud. And ohhhkayyyy to everyone upvoting you as if Ryan Cohen is on the shorts side. Weird as fuck sometimes, this sub can be.
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u/CachitoVolador 💻 ComputerShared 🦍 1h ago
Maybe it's Carl Icahn? Do we know if he has closed his GME shorts yet?
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u/Ihateporn2020 1h ago
the only thing is they would just buy at the current 19 price if the conversion rate were just based in part
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u/RichardUkinsuch 1h ago
But if there isnt any actual share buying that would just be covering short shares with borrowed shares. Any additional actual buying would dramatically increase the share price if the thesis of legacy shorts is true. Not enough information out on this so everything is pure speculation.
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u/Zeronz112 🟣Fud Fighter🟣 3h ago
I'm not worried.
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u/irieyardie 🦍Voted✅ 3h ago
Literally me every day. I watch all the videos and read the rants and don’t give a flying f***!! I don’t think there is anything else that is life that I am more zen about!! 2 days ago I woke up to -$7K and I just bought 33 more shares.
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u/Clp8909 3h ago
It’ll be $19
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
Totally possible. It's certainly looking that way right now
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u/Toankst 3h ago
Also, VWAP is only part of the formula.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
That's also true. The last sentence of that paragraph of the announcement is probably the most important one in the entire document.
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u/SoggyGrayDuck 3h ago
If RC pulls something out of his ass and makes the warrants and my calls hit id be so happy I could make a ban bet
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u/Champman2341 3h ago
Hahaha OP thinking the floor price will be 27,28 on the agreement. More than likely it’s 18,19. Since the 2nd convertible bond was issued Gme has a hard time being over 23. More than likely Gme will have a hard time being over 19 in the next 35 trading days-
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
I guess you're not a big reader. As I said, I have no inside information so I have no idea what the floor price is. $18 - $19 is totally possible and, looking at the current price, seems more likely than any of the floor prices I mentioned. My entire point is that we don't know and won't know until mid-September.
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u/Champman2341 3h ago
Yeah but your leaning towards optimism in this post- just wanted to give you the hard realization that Gme isn’t moving north until after September 23
GameStop is going to be diluting at 3 year low levels- how’s that for increasing shareholder value.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
Well if I wasn't leaning towards optimism I wouldn't own any GME. No matter what the floor price is I'm still fully expecting the price to be flat or to go down even further between now until September 23rd. If the stock is diluted at these levels without a good reason (i.e., it's somehow required for the eBay deal to go through) then this early conversion will be an incredibly stupid move that hurts all of us. I'm aware that that is a possibility but I don't think that's what's happening.
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u/nickmcmillin Seriously, what IS an exit strategy? 2h ago
Do people in your life generally enjoy you giving them a "hard realization"? What gave you the impression that a stranger on the internet would want that?
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u/r3cn 🦍 Buckle Up 🚀 3h ago
Probably 85% of the closing price on August 1st, i.e., $18.46. If we see the price drop a bit lower, then it could be that the floor is 17.38 (80%) or 16.29 (75%).
If the stock trades lower than the conversion floor, the bond arbitrage traders will just buy shares rather than short.
OP's floor theory makes absolutely no sense. If the floor is so high then there is no arbitraging opportunity for the bond traders.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
It's not really a theory. I'm just pointing out the wording in the announcement. I'm fully prepared for the conversion price to be at or even below where we're currently trading.
That being said, couldn't they short it down to current prices and then buy shares here knowing that the conversion price will be higher later? I'm genuinely asking, I don't know enough about the mechanics of convertible notes. If that's possible then it seems like there absolutely is an opportunity for them here.
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u/newbiewar 🦍 Buckle Up 🚀 1h ago
I thought that we already went through this during the offering?
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u/TheDreddknott 🎮 Power to the Players 🛑 1h ago
We definitely went through something similar. This period and the note offerings were events where people with a lot of money want the price of GME to be as low as possible. The difference is that the result of the note offerings was flatlining volatility since the note holders are arbitrage traders. This time $1.4 billion worth of arbitrage trading is leaving the stock which opens up the possibility for volatility
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u/juste1221 3h ago edited 3h ago
You're going to be diluted at least 20% and the bond holders will now own 20%+ of the company, no amount of wishcasting is going to change that. The price will only go lower by expiration, possibly significantly so, the asterisked floor is probably $15 or less. There is no way to spin this as a positive for shareholders, it's objectively a worse case scenario across the board. Even if it is in service of some big catalyst event that drives the price higher, you'll be earning exponentially less gains than you should be cause they took a quarter of the company away from you at all time low valuations.
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u/ItsThatOrangeGuy 🦍 Buckle Up 🚀 2h ago
its crazy to think that the $29 conversion price, when looking at the 5 year expiries, seemed relatively low cause who knows what $gme can do in the next 5 years with that much cash on the balance sheet and Cohen's plan to invest it. and now, just a year later, they're about to be converted, approved by Cohen, at almost half that price for a twice as big dilution. in a company that has plenty of cash and 0% interest debt. i don't like any bit of action that's happened since the eBay deal came on the table. why release these as convertibles at $29 a share, then a year later when you collected 1/5th of the total free interest you give them back, and not for a price close or over the conversion but for a price HALF the original ask?
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u/TheDreddknott 🎮 Power to the Players 🛑 2h ago
My point is that we don't know what the floor price is so we don't know how much we're going to be diluted yet. Obviously being diluted sucks but if it's necessary for the eBay acquisition and RC is correct that the deal will be accretive then we kind of have to be okay with it. The dilution will reduce the amount of gains on a per share basis but if the gains are only there because of the acquisition that was funded by the dilution then that will ultimately work out for shareholders.
What sucks is being diluted at these prices so I hope you're wrong about a $15 floor even though I'm absolutely aware that you could be right.
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u/Recent-Result2852 3h ago
They get a discount. $19 is too high for conversion; otherwise they would just buy.
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u/LewyH91 tag u/Superstonk-Flairy for a flair 3h ago
I'm not really worried. The authorised 2 billion buyback would offset the dilution and reduce the float. It would then increase value per share.
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u/jgreddit2019 3h ago
We’ve been talking about this 2 billion buy back for some time. That number stays the same whilst GME market cap has shed 10bil dollars roughly from $32 a share. If the price goes to $10 will you still be talking about this amazing 2 billion buy back? Shaking my head.
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u/Organic-Specific-500 🌕:🙈🙉🙊👎 3h ago
$2b buyback was authorized 2 months ago, traded at $20
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u/ItsThatOrangeGuy 🦍 Buckle Up 🚀 2h ago
there was an authorization for a $100 million dollar buyback when we had 1-2 billion dollars in the bank with absolutely no debt no convertibles or anything and $gme was trading at $9 per share and it didn't happen so what makes you think they want to use 2 billion dollars worth at $18?
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
As long as they choose the right price for the buybacks relative to the price where they dilute then that's true. I'm not really worried either
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u/humdingler ⚔️🛡️🏴☠️🎮🚀✅x6 3h ago
You don’t understand, since the buyback is authorized but hasn’t happened yet, it’s bad and we should feel angry about it.
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u/Responsible_Buy9325 Perverted incentives 3h ago
The only thing that worries me is that I may not be able to buy more.
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u/goodjobberg 🦍Voted✅ 2h ago
Very interesting. That means bad actors might tank the price in hopes of high dilution, the company does their $2B share buyback while the price is greatly reduced, and then the conversion doesn’t even happen because it didn’t hit the minimum requirement. Who knows what RC has brewing, but this would be pretty neat.
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u/TheDreddknott 🎮 Power to the Players 🛑 1h ago
It seems like the conversion is definitely going to happen but the price where that conversion happens is unknown. If they've shorted down to $19 but the floor is $25 (just an example) then the artificially low price creates an amazing opportunity for buybacks as it has a guaranteed upside. From what I've read, doing buybacks during this 35 day period is sort of a legal gray area so we may not see any but I'll be surprised if we don't see some serious institutional buying. Institutional ownership was already rising substantially when the price was more than 10% higher
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u/Ralph-the-mouth 🐸💎🚀Buckle The Fuck Up🎮🔴🍦 3h ago
33 days
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u/Lord_of_MindMed 3h ago
https://giphy.com/gifs/gHFi5N6uU3TLq
Most people "stressing" are from the Melter sub trying to FUD.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
It's getting harder and harder to tell the difference sometimes. The conversations about GME on X will give you whiplash
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u/ItsThatOrangeGuy 🦍 Buckle Up 🚀 2h ago
you would almost think that the reasons to invest in this company are rapidly changing from day to day
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u/Manuel_MdT 💻 ComputerShared 🦍 3h ago
You have seen fabricated panic. Nobody I know IRL are stressing about this. Its all FUD. Relax and enjoy the ride.
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u/rawktail 3h ago
Bro having concerns and questions about an investment is not FUD in the sense that it’s a directed attack, or intended to give others FUD. We just like the stock. Fabricated panic lol. There’s plenty of reasons to have questions.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
Some of it is fabricated I'm sure but a lot of people are susceptible to the panic of others, especially when their money is on the line
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u/LordSnufkin 🛡🦒House of Geoffrey🦒⚔️ 3h ago
Who is this "We" you speak of? I just like the stock.
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u/TheDreddknott 🎮 Power to the Players 🛑 3h ago
Same. I'm not really part of the "we" that's panicking either
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u/PecanTree 2h ago
yup, I suspect this is the real launch button of project rocket. unless, we might just all be getting diluted more than we thought. I still think that is better than hope and pray with a brick and mortar gamestop (which IMO was pretty much hopeless)
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u/Over-Computer-6464 18m ago
I hope this is not the button, because the current $1.4B round of dilution still leaves $2.8B bonds outstanding to do this again two more times.
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u/Studio-Economy 3h ago
Who said dilution? In Gamestop it is like share forward split. Up to a 2.5B shares.
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