June starts full steam ahead for GameStop (GME) - Get GameStop Corporation Report stock. One day after announcing its first-quarter (Q1) results, the company will host its 2022 annual shareholder meeting, where shareholders will vote on some important proposals.
(Read more from Wall Street Memes: GameStop Stock: What to Expect Ahead of Earnings)
What Happened During Last Year's Annual Shareholder Meeting
Last year, GameStop's annual shareholder meeting took place on June 9 in conjunction with the company's Q1 2021 earnings. At the time, there was a great deal of hype surrounding the event, and GameStop shares were in the midst of a rally of over 55%.
At that meeting, GameStop stockholders were asked to: (1) elect six directors to serve on GameStop's board until the next meeting; (2) vote concerning compensation for the appointed directors; (3) approve the audit committee of the independent registered firm; and (4) address other matters proposed by shareholders.
Among the proposals voted on, the main highlights of the meeting were the appointment of a new CEO, Matt Furlong, and a new CFO, Mike Recupero, both from Amazon (AMZN) - Get Amazon.com Inc. Report. These two appointments came under the influence of GameStop's activist shareholder Ryan Cohen -— who is also the company's largest shareholder — who within a short period after the annual shareholder meeting stepped up to chair the GameStop board.
Cohen's proposed change in the company's command was due to the previous CEO, George Sherman, having a more "traditional" CEO role with many perks (such as private jets, etc.) and sizable cash-based compensation. Furlong accepted the role of CEO knowing that his performance compensation would come primarily from stock awards.
However, after the market drove the Q1 2021 earnings results and the changes that occurred during the 2021 annual shareholder meeting, GameStop's rally between May and June came to an end. Shares have plummeted nearly 40% since August 2021.
This Year's Votes
In this year's edition, aside from the usual housekeeping matters that are voted on every year, the shareholders present will also vote on the proposal for a stock-split plan in the form of a dividend on GameStop stock. The company's intention to offer a stock split in this format allows current owners of GME shares to be awarded a "dividend" of additional shares, rather than cash.
If the plan is approved — GameStop management strongly encourages shareholders to vote in favor — GME's common stock will be increased from 300 million to 1 billion. The goal, according to the company, is to increase the liquidity of the stock to meet GameStop's future needs. The ratio of the split, although widely speculated by shareholders, has not yet been disclosed.
Another important proposal to be voted on at the 2022 annual shareholder meeting is the Incentive Plan, which aims to replace the current 2019 Incentive Plan. According to GameStop's proxy report, the new plan aims to make issuing equity compensation easier.
If the plan is approved, 8 million shares of common stock will be available to be issued. GameStop communicates that the plan must be approved for the company to continue to have the resources to attract, retain, and motivate its high-quality management team. The board of directors, including Cohen, has strongly advocated that stockholders should vote to approve the new plan.
What Could Be the Impact?
Theoretically, stock splits in dividend form tend to be short-term rally catalysts. Although stock splits do not add any value to the company's fundamentals, there is a psychological factor behind them that can generate investor euphoria.
We've seen this with other large companies such as Apple (AAPL), Tesla (TSLA), and Amazon, which split their stocks in the recent past and as a consequence benefited from short-term rallies.
Although these short-term rallies can be blamed on market irrationalities, even GameStop short-sellers fear the impact of GameStop's stock split. Bronco Capital, in a letter to its clients in Q1, warned that the event could serve as a catalyst for GameStop shares:
"We could joke that every child knows that cutting a pizza into more slices yields more pizza. But in this market, not accepting that stock splits add value is a recipe for losing money."
The other proposal to be voted on, the 2022 Incentive Plan – although important for conducting the company's business in a healthy way – brings up a "forbidden" subject: stock dilution. Dilutions usually symbolize the loss of voting power for shareholders and cause a drop in the company's share price.
However, GameStop has been announcing since the middle of last year that it would raise capital strategically from time to time. Perhaps the most strategic way to reconcile the needs of the business (raising equity) without hurting GameStop’s share price and leaving shareholders frustrated could be to turn the meeting's focus to the stock-split proposal, rather than bringing attention to the 2022 Incentive Plan.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)