GameStop stock climbed about 4% on Monday. The company paid $358.4 million in cash to stop a share count that could have continued to grow.

The payment freezes the deal at roughly 55.5 million new shares. That equals about 12% of GameStop’s 448.7 million shares outstanding.

Why GameStop Stock Rallied After the Dilution Fix

On August 3, GameStop agreed to swap $1.4 billion of zero-coupon convertible debt for stock. The company would hand over shares and pay nothing.

The catch sat in the pricing, as the share count depended on an average of GME’s price over 35 trading days. A cheaper stock meant more shares.

Traders spotted the loop at once, and GME fell 12.25% that day to $19.06, down from $21.72 on July 31.

GameStop has now killed the rest of that window. Noteholders take 73% of the deal in shares and 27% in cash. No further shares can be issued.

The Warning Buried in the Filing

Monday’s amendment added a clause the August 3 release did not carry.

“GameStop expects that participating noteholders may purchase or sell shares of Common Stock or enter into or unwind derivative transactions to adjust their positions, including purchases of Common Stock to close out short positions,” read an excerpt in the filing.

Those last five words matter because convertible investors usually short the stock to hedge. A frozen share count and a cash payout can leave those hedges mis-sized.

GameStop also pulled the closing date forward by 20 days, to about September 3. That compresses the window for any unwinding.

What the Fix Does Not Solve

The exchange retires only a third of the debt. Roughly $2.8 billion of the original $4.2 billion convertible stack stays on the books.

The cash came from a shrinking pile, too. Holdings fell to about $5.06 billion from $8.694 billion, mostly because GameStop converted its proposed eBay takeover bid into 43.4 million eBay shares.

The quarter itself read better. Sales slipped to between $780 million and $800 million from $972.2 million. Yet operating margin jumped to roughly 20% from 6.8%, even after a $75 million loss on GameStop’s Bitcoin holdings and other digital assets.

At $18.65, GME still trades 14% below its July 31 close. The dilution clock has stopped. The rest of the risk has not.

Source: BeInCrypto