EBay has turned down an audacious $56 billion US acquisition offer from GameStop, a significantly smaller company, citing concerns about the financing of the deal and highlighting its successful turnaround efforts that have driven growth. There have been doubts among analysts and investors regarding the feasibility of the half-cash, half-stock bid from the $12 billion US video game retailer for a business nearly four times its market value.
The market price of eBay stock has been trading well below the offer amount of $125 US per share since the bid was proposed earlier this month. Before the market opened, eBay’s stock dropped by one percent to $107 US, while GameStop experienced a four percent decline.
eBay’s chairman, Paul Pressler, expressed that the company finds the proposal from GameStop neither credible nor appealing. He emphasized that the current management team is well-equipped to drive sustainable growth. GameStop has not provided an immediate response to the rejection.
The rejection may potentially lead to a hostile takeover bid, as GameStop’s CEO, Ryan Cohen, indicated his willingness to directly engage with eBay shareholders, possibly through the initiation of a special meeting. Cohen claims to have secured a $20 billion debt financing commitment letter from TD Bank, contingent upon the combined entity obtaining an investment-grade rating. Moody’s previously stated that the proposed deal would have a negative impact on eBay’s credit rating.
Cohen has argued that merging GameStop with eBay could result in cost reductions and synergies, ultimately creating a larger enterprise. He believes that by implementing GameStop’s cost-cutting strategies and utilizing its network of 600 U.S. stores, eBay could enhance profitability and emerge as a stronger competitor to Amazon.
The potential merger has captured the attention of the mergers and acquisitions market and retail investors, with Cohen being admired by many since his involvement in a short squeeze in 2021 that targeted hedge funds like Melvin Capital.
The offer has not been well-received by all GameStop investors, with figures like Michael Burry, known for “The Big Short,” divesting their stakes in the company, citing concerns about increased debt and shareholder dilution.
Both eBay and GameStop are involved in selling collectibles, such as trading cards, although their core business models differ. eBay facilitates online transactions between buyers and sellers, while GameStop operates physical stores where it purchases goods wholesale for resale.
Cohen’s bid has raised eyebrows on Wall Street, with skepticism surrounding how GameStop would finance the acquisition of a company four times its size. In a CNBC interview, Cohen, sporting a black leather jacket and T-shirt, provided limited details on the financing, causing awkward moments during the discussion. He informed eBay’s board that he would assume the role of CEO in the merged entity without receiving a salary, cash bonuses, or a golden parachute.
Ryan Cohen, a 40-year-old billionaire, gained recognition by co-founding and selling Chewy, an online pet food retailer, before making a significant investment in GameStop when its market value was $250 million US. Cohen became GameStop’s chairman in 2021 and later took on the CEO position after the removal of his chosen CEO, a former Amazon executive, in June 2023.