GameStop CEO Ryan Cohen’s unprecedented $56 billion takeover bid for the much larger eBay drew scepticism from investors and analysts on Monday, May 4, 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 that it has already built a 5% 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.
Still, eBay shares rose just about 6% 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%.
EBay said it was reviewing the offer, including GameStop’s ability to deliver a “binding, actionable proposal”.
“We can issue stock 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 collectables 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% 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 of over $200 billion.
