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GameStop (GME) Gains on $700M Deal to Sell Spring Mobile Unit

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Shares of GameStop Corp. (GME - Free Report) rallied more than 11% on Nov 21, after the announcement of the sale of Spring Mobile business for $700 million in cash. Prime Communications is the buyer of the mobile division, which operates and owns 1,289 AT&T wireless stores. The company expects to close the deal by fourth-quarter fiscal 2018, after the satisfaction of customary conditions and regulatory approvals. 
The decision to divest the Spring Mobile business is part of the company’s comprehensive review process as it continues to look for strategic alternatives to boost shareholder value.  This move will generate immediate cash flows, enabling the company to focus on its core businesses of video games and collectibles. The company plans to use the net proceeds from the sale to lower debt, reinvest in core video games and collectibles businesses, and fund share repurchases. 
Further, this divestiture will help GameStop get rid of its cellphone business that lost $316 million in fiscal 2017, per media reports. The mobile division is part of the company’s Technology Brands segment, which is the only unprofitable segment that accounts for less than 10% of total net sales. 
Earlier in January, the company divested its Cricket Wireless Business to streamline the Technology Brands segment. Notably, GameStop is facing competitive headwinds, owing to decline in physical video game sales. Adding to the woes, the company lacks leadership as it has no permanent CEO. We note that shares of this Zacks Rank #4 (Sell) company have declined 21.1% in a year’s time, against the industry’s growth of 7.9%.
Additionally, a gradual shift to digital and mobile downloads also poses a threat to the company’s software business. Consolidated comps dipped 0.5% in the second quarter of fiscal 2018, mainly due to a decline of 6.4% at international locations, which was somewhat offset by rise of 2.4% at domestic locations. GameStop continues to expect fiscal 2018 sales to decline 2-6% and projects comparable store sales to be flat to down 5%.
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