EBay has turned down a bold $56 billion US acquisition offer from GameStop, citing concerns about the deal’s funding. The $12 billion US video game retailer proposed a bid consisting of half cash and half stock to acquire eBay, a company nearly four times its market value, sparking skepticism among analysts and investors.
Since the bid was announced earlier this month, eBay’s stock has been trading well below the offer price of $125 US per share, dropping to $107 US before the market opened, while GameStop experienced a four percent decline. eBay’s chairman, Paul Pressler, expressed the board’s confidence in the current management team to drive sustainable growth and deemed GameStop’s proposal as lacking credibility and attractiveness.
GameStop is yet to respond to the rejection, raising the possibility of a hostile takeover bid. GameStop’s CEO, Ryan Cohen, mentioned his willingness to directly approach eBay shareholders with the offer, potentially through a special meeting.
Cohen claims to have secured a $20 billion debt financing commitment letter from TD Bank, contingent on the merged company obtaining an investment-grade rating. Moody’s has raised concerns, stating that the deal could negatively affect eBay’s credit standing.
Advocating for cost reduction and synergies, Cohen believes merging GameStop and eBay could lead to a more substantial business entity. He aims to leverage GameStop’s cost-cutting strategies and physical network of 600 U.S. stores to enhance eBay’s profitability and competitiveness against Amazon.
The proposed acquisition has attracted attention in the mergers and acquisitions landscape and among retail investors, with Cohen hailed as a hero following his involvement in a short squeeze against hedge funds in 2021.
The offer has faced criticism from some GameStop investors, including Michael Burry, renowned for “The Big Short,” who divested his stake in the company, warning about the potential debt burden and dilution of shareholders.
Despite both companies dealing in collectibles like trading cards, their core business models differ. While eBay facilitates online transactions between buyers and sellers without holding inventory, GameStop operates physical stores where it purchases goods wholesale for resale.
Cohen’s offer has raised eyebrows on Wall Street due to the significant size gap between the two companies. In a CNBC interview, Cohen struggled to provide detailed financing plans for the $56 billion US acquisition, leading to uncomfortable moments during the conversation.
In a letter to eBay’s board, Cohen pledged to serve as the combined entity’s CEO without salary, cash bonuses, or golden parachute. The 40-year-old entrepreneur gained prominence through successful ventures such as co-founding online pet foods retailer Chewy and making strategic investments in GameStop.
Assuming the chairman role at GameStop in 2021, Cohen took over as CEO after the dismissal of his chosen predecessor, a former Amazon executive, in June 2023.