Michael Burry weighed in Monday on the direction he sees GameStop (GME) taking based on CEO Ryan Cohen’s comments last week about making a major acquisition.
Cohen has not named his potential M&A target but said he is seeking a publicly traded consumer company that’s undervalued, “high quality, durable, and scalable with growth prospects,” and has a “sleepy management team.”
Burry sees Cohen and GameStop (GME) having the firepower to go after a large acquisition because his 0% convertible bonds and warrants give him an additional $6.1 billion in net cash if shares cross into the $30s (GME currently trades up 7% at $25.73). For his part, Burry thinks Cohen is likely to approach multiple different companies and essentially LBO them in a strategy he calls “Instant Berkshire.” The strategy would be to create a portfolio of great companies that generate excess capital or float for additional investment beyond what is required for their growth.
As for targets, Burry started with ADT (ADT), which is seen as attractive for its synergy opportunities, cash flow, and customer relationships. Wayfair (W) ranked second on Burry’s list of GameStop (GME) M&A targets. The online retailer’s logistics infrastructure and customer relationships were highlighted. Other signs seen by Burry as being potential candidates in the Instant Berkshire portfolio include Assured Guaranty (AGO), Penske Automotive Group (PAG), Mattel (MAT), Sprouts Farmers Markets (SFM), and Sirius XM (SIRI). He also mentioned Wynn Resorts (WYNN) or MGM Resorts (MGM) as potentially interesting alternatives to Wayfair (W).