Mike Ashley makes a move on Game Digital (GMD)

Retail Tycoon is slowly dominating the high street as he doubles down on his ownership of well-known brands.

Article updated: 6 June 2019 3:00pm Author: Helal Miah

  • Sports Direct has acquired a large amount of shares, taking its total ownership of Game Digital to 38.49% requiring a full takeover offer.
  • Shares in Game have boosted significantly while this is a drop in the ocean for Sports Direct with little impact on the share price.
  • We do not have a formal recommendation on either shares but assuming the deal goes through, we would still be cautious on retail and investing in Sport Direct.

Retail Tycoon Mike Ashley is doubling down on his ownership of brands on the high street and this time is looking for a full blown takeover of Game Digital in which he already held 29.9% since 2017 when Game Digital was effectively partly rescued by him. This time round his Sports Direct group has acquired a large amount of shares from the Marlborough UK Micro-Cap fund for 30p a share, taking its total ownership to 38.49%, above the threshold which now requires the group to make a mandatory cash offer for the remaining shares.

Game Digital has been facing an extremely difficult trading period, not just because of the tough high street environment but also because of the increased numbers of console games downloadable online. Sports Direct themselves believe Game Digital cannot weather the pressures on its own and they see value in putting Game Digital concessions in Sport Direct stores. They also see value in a 50% ownership of Game’s physical playing arenas named BELONG.

Hollow boost for Game shareholders

While the shares of Game Digital today have received a big boost, up in excess of 25% upon the news, it will provide little consolation for longer term holders who have seen more than 90% of their value wiped out since the start of 2015. For Sports Direct, it will be a relatively small acquisition which has had little impact on the share price today.

Mike Ashley has been burned by focusing on further investments on the high street and the UK retail sector, but we see merits in this proposal as it would help diversify the business a little, bringing in another segment of the retail market into its stores with opportunities for cross selling along with cost synergies. A little like the Sainsbury acquisition of Argos, we expect to see more retail brands going the same way. However, we are still not very enthusiastic on the sector and find it difficult to see where growth will come from apart from online. We do not have a formal recommendation on either shares but assuming the deal goes through, we would still be cautious on retail and investing in Sports Direct.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.