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GameStop Plunges on Plans to Sell 3.5 Million Shares

GameStop shares plunge after the video-game retailer says it plans to sell up to 3.5 million shares that could net the company more than $600 million in fresh capital.

GameStop  (GME) - Get GameStop Corp. Class A Report shares plunged on Monday after the video-game retailer at the center of Reddit-fueled retail rally said it plans to sell up to 3.5 million shares that at the current share price could net the company more than $600 million in fresh capital.

In a filing with the Securities and Exchange Commission, GameStop said it plans to sell the shares through an “at-the-market” equity offering program. It said it intends to use the net proceeds to “further accelerate its transformation as well as for general corporate purposes and further strengthening its balance sheet.”

The filing comes amid expectations that GameStop would make a move to take advantage of its retail-investor-fueled share-price run, which has increased the stock more than 1,000% since the start of the year - and also raised concerns of how masses of retail investors can influence the direction of companies' shares.

GameStop as well as AMC Entertainment  (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report and other companies have seen their shares surge as retail investors have collectively communicated via online chat boards like Reddit's WallStreetBets to bid up stocks in an effort to force hedge funds and other large investors to abandon their short positions.

AMC founder and CEO Adam Aron told TheStreet's Jim Cramer last week that his company has been able to navigate its way through the coronavirus pandemic by raising $2.8 billion in cash, thanks in large part to the rally in its share price despite being close to going out of business "five different times last year."

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AMC in late January said it raised $917 million in debt and equity that it said not only takes bankruptcy "completely off the table" but also put it in position to pay down debts accumulated during the pandemic and beef up its coffers.

Both GameStop and AMC have become the mascot of retail traders collectively encouraging one another in online chat groups on Reddit and other platforms to keep pushing the stock higher.

GameStop has implemented a series of management changes, led by activist investor and board member Ryan Cohen, who has continued to replace board members to help it re-shape its image and business and make the retailer a tech heavyweight.

Cohen is the co-founder and former CEO of e-commerce company Chewy  (CHWY) - Get Chewy, Inc. Class A Report, which was acquired by PetSmart in 2017 for $3.35 billion.

GameStop also said Monday that March sales increased 18% from a year ago, while sales for the first nine weeks of fiscal 2021 increased 11%. GameStop, along with other retailers globally, was forced to shutter most of its physical stores in March 2020 due to the pandemic. 

At last check, shares of GameStop were down 7.43% at $177.23 after being down as much as 16% in premarket trading. Shares of AMC were up 7% at $10.02.