What happened
Shares of Dave & Buster's (NASDAQ: PLAY) jumped today after the "eatertainment" chain adopted a "poison pill" shareholder rights policy designed to keep any one investor from gaining a significant stake in the company. Investors seemed to take that as a vote of confidence from management in the company's future at a time when Dave & Buster's is facing unprecedented uncertainty. Many of its locations are in communities under lockdown-style conditions and are therefore closed.
Before today's gains, the stock had plunged 90% since Feb. 21, a sign of the threat investors believe the coronavirus to be.
Today, the stock had soared 61% as of 12:58 p.m. EDT in response to the shareholder rights plan.
Image source: Dave & Buster's.
So what
In a press release, Dave & Buster's said that the rights plan would be exercised when an investor accumulated more than 15% of a stock, or 20% in the case of passive institutional shareholders. The plan will give shareholders the right to purchase shares at an exercise price that is half the market value of the stock, which would dilute the stock and prevent a hostile takeover. The move comes after activist investor KKR had already accumulated a 12% stake in the company and held talks with management.
Now what
Dave & Buster's stock is clearly in a big hole due to the coronavirus crisis, and its balance sheet isn't particularly strong. As of Nov. 3, 2019, the end of the last quarter it reported, the company had $20.9 million in cash and cash equivalents and long-term debt of $640.4 million, and current liabilities outnumber current assets by about 4 to 1.
It's unclear how many of Dave & Buster's locations are currently closed, but the company will likely have to tap credit markets to stay afloat, because its performance over the next few months should take a serious hit. Closing stores means laying off staff, some of whom might not come back, or continuing to pay them while they don't work. Either way, it's a challenging situation -- as it is for most restaurant stocks -- and management has thus far left investors in the dark.
The company is expected to report earnings at the beginning of April, which should hopefully provide some more insight.
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Jeremy Bowman owns shares of Dave & Buster's Entertainment. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.
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