GameStop's $56 billion eBay bid raises financing doubts among investors
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May 4 : GameStop CEO Ryan Cohen's unprecedented $56 billion takeover bid for the much larger eBay drew skepticism from investors and analysts on Monday, with shares in the online retailer trading much below the offer price.
The nearly $12 billion video-game retailer, popular among meme-stock traders, is attempting a half-cash, half-stock buyout of a company nearly four times its market value with just around $9 billion in cash and a debt load of $4.2 billion.
GameStop disclosed over the weekend it has already built a 5 per cent stake in eBay and touted $20 billion in potential debt financing from TD Securities to convince shareholders of the deal.
Cohen argued he could replicate his cost-cutting playbook at GameStop to boost eBay's profitability, while tapping GameStop's around 1,600 U.S. stores into a physical network to make eBay a better competitor to Amazon.
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Still, eBay shares rose only about 6 per cent to $110 in early trading, well short of the $125-per-share offer - a sign that investors were doubtful the deal would close. GameStop fell 2 per cent.
EBay said it was reviewing the offer, including GameStop's ability to deliver a "binding, actionable proposal".
"We have the ability to issue stock in order to get the deal done," Cohen told CNBC in an interview.
Morgan Stanley analysts said the market needs more funding details and that an all-stock alternative could be a hard sell to investors given that the two companies have "fundamentally different" business models and few revenue or cost savings from combining.
Both eBay and GameStop sell collectibles such as trading cards but their mainstay businesses are different. While eBay earns fees by connecting buyers and sellers online without holding inventory, GameStop is a traditional retailer that buys goods wholesale and resells them through physical stores.
"The other primary option (to fund the deal) would be a leveraged buyout. Assuming at least a 20 per cent premium, that would make this the largest leveraged buyout ever, surpassing the recently announced $55 billion Electronic Arts transaction," Morgan Stanley analysts said.
Only a few deals in which a smaller company has bought a much larger one have succeeded. Paramount Skydance agreed earlier this year to buy larger rival Warner Bros Discovery, but the deal was bankrolled by Larry Ellison, one of the world's richest people with a net worth above $200 billion.
BID COULD PUT EBAY IN M&A SPOTLIGHT
Once a competitor to Amazon, eBay has repositioned itself in recent years as a destination for antiques, rare sneakers and high-end fashion rather than mainstream e-commerce.
That has helped power sales growth and boosted its stock price, with shares up nearly 20 per cent so far this year following a strong earnings report last week.
Analysts said even if the GameStop bid failed, it could draw interest from other potential acquirers.
Cohen became a central figure in the 2021 meme-stock frenzy when he took the helm of GameStop, triggering a surge of buying by retail investors speculating that he would transform the struggling gaming business.
Those retail investors cheered the GameStop bid in posts on forums such as Reddit, with some speculating that Cohen could emerge as CEO of a combined "GameStop Hathaway" or "GameShire Hathebay", a reference to building a massive online conglomerate of the kind forged by Warren Buffett at Berkshire Hathaway.
Vanda Research, which tracks trading by independent retail investors, a category that includes meme-stock fans, said in a report on Monday that this group re-emerged as big buyers of both GameStop and eBay after the former formalized its bid. When GameStop shares faltered, this cohort stepped up their purchases, Vanda reported, turning Monday into the fifth-largest day of buying in the stock over the last 12 months.
"This is the type of catalyst that could spark a broader retail frenzy in both names," Vanda said in its report, adding that so far there were no signs of extreme meme-like buying.
Cohen, who built out online pet supplies retailer Chewy, has said he was ready to go hostile in his eBay approach.
Buying eBay could help him make progress on the targets key to his compensation package worth roughly $35 billion that GameStop unveiled in January, including growing its market value to $100 billion.
"The Big Short" investor Michael Burry, who once likened Cohen to Warren Buffett, said in a Substack post that he had sold all of his shares in GameStop.
In a post earlier on Monday, Burry said the strategy behind the deal "could not be more pedestrian", adding that it would lead to more debt and shareholder dilution.
"Ryan's attempt to take over eBay cannot possess the actual honest and true intent to compete with Amazon. Rather clearly, the intention must be to dominate collectibles and used goods of all ages," he said.
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