Best Buy-GameStop Merger 'Doesn't Make Much Sense' But Could Draw Store Traffic

Best Buy Co Inc BBY is rumored to be interested in acquiring GameStop Corp. GME. Both stocks are up more than one percent, but is there any truth to this rumor? "I recommended it in 2010 when Best Buy was bigger and GameStop [was] smaller, as the combined company would have a ton of cash flow and would allow Best Buy to close half of its big box stores," Wedbush analyst Michael Pachter told Benzinga. "It doesn't make as much sense now, as Best Buy is not as large, GameStop is a lot bigger, and GameStop competes in mobile. I don't believe it is happening." Rentrak Corporation RENT Senior Media Analyst Paul Dergarabedian told Benzinga that if Best Buy is interested in a merger, it might be trying to repeat its strategy with Magnolia. "I don't necessarily think it's a bad thing," said Dergarabedian. "For the fans, the gamers, you're kind of a one-stop shop. For Best Buy, it gets people in the store who might decide to buy more hardware with which to play games."

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The Deal Best Buy Needs?

Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, has a different take on the Best Buy-GameStop merger. "I think that's the kind of thing they need to do," Udall said of the merger. He told Benzinga that this deal -- or deals like it -- could help Best Buy. "I [also] think they need to have more inventory in the stores," Udall added. "I think they cut their inventory down [to where] it's literally annoying. To me, I don't like it when I look at a specific product, they don't have it and they offer to order it." That isn't why Udall came to Best Buy. If he was going to order the product, he could have stayed home and shopped at Amazon.com, Inc. AMZN. Aside from GameStop, Udall said Best Buy should consider looking at a company like Fry's Electronics, which Forbes listed as one of America's largest private companies. Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.