EBay has turned down a bold $56 billion US acquisition offer from GameStop, citing concerns over the funding of the deal. The bid, which involved half cash and half stock, raised doubts among analysts and investors due to the significant difference in market value between the two companies.
Since the offer was made earlier this month, eBay’s stock has been trading well below the proposed price of $125 US per share. The stock fell by one percent to $107 US before the market opened, while GameStop experienced a four percent decline.
EBay’s chairman, Paul Pressler, stated that the board of directors found the proposal neither credible nor attractive. He expressed confidence in the current management team’s ability to sustain growth for the company.
GameStop has not yet responded to the rejection, raising the possibility of a hostile takeover attempt. GameStop’s CEO, Ryan Cohen, had previously indicated a willingness to present the offer directly to eBay shareholders by potentially calling a special meeting.
Cohen has claimed to have secured a $20 billion debt financing commitment letter from TD Bank, contingent on the combined entity obtaining an investment-grade rating. Moody’s has already warned that the proposed deal would have a negative credit impact on eBay.
By merging GameStop and eBay, Cohen believes that significant cost reductions and synergies could be achieved, resulting in a larger and more competitive enterprise. He envisions leveraging GameStop’s cost-cutting strategies and utilizing its network of 600 U.S. stores to enhance eBay’s profitability and position it as a stronger competitor against Amazon.
The proposed acquisition has attracted attention within the mergers and acquisitions landscape and among retail investors. Cohen’s involvement in a short squeeze in 2021 that targeted hedge funds like Melvin Capital has further elevated his profile among investors.
Some GameStop investors, including Michael Burry of “The Big Short” fame, have expressed concerns about the offer. Burry divested his stake in GameStop, warning that the deal could burden the company with debt and dilute shareholder value.
Despite both eBay and GameStop being involved in selling collectibles, their core business models differ. While eBay operates as an online platform connecting buyers and sellers, GameStop focuses on purchasing goods wholesale and retailing them through physical stores.
Cohen’s bid has raised skepticism on Wall Street, with questions surrounding how GameStop would finance the acquisition of a company four times its size. In a CNBC interview, Cohen provided limited details on the financing plan, leading to awkward moments during the discussion.
Cohen has proposed to lead the combined company as CEO without receiving a salary, cash bonuses, or a golden parachute. His background includes co-founding and selling online pet foods retailer Chewy, as well as making a significant investment in GameStop during its earlier stages.
After joining GameStop as chairman in 2021, Cohen took over as CEO following the departure of his chosen executive in June 2023.
The rejection of GameStop’s bid by eBay highlights the complexities and uncertainties surrounding the proposed acquisition, with both companies facing challenges in aligning their strategies and financial capabilities.
