Shares of eBay underperformed on Monday following GameStop’s ambitious $56 billion takeover proposal, highlighting significant investor doubts about the deal’s viability. GameStop CEO Ryan Cohen has offered to acquire the much larger online marketplace through a combination of cash and stock, despite GameStop’s market capitalization being roughly $12 billion compared to eBay’s substantially higher valuation.
GameStop holds approximately $9 billion in cash but also carries $4.2 billion in debt, raising questions about how the company would finance the acquisition. Over the weekend, GameStop disclosed it had already accumulated a 5% stake in eBay and secured potential debt financing of up to $20 billion from TD Securities to support the bid.
Cohen intends to apply GameStop’s cost-cutting approach to enhance eBay’s profitability, while leveraging GameStop’s network of around 1,600 U.S. stores to establish a physical retail presence. This strategy aims to position the combined entity as a more formidable competitor to Amazon.
Despite the premium offer of $125 per share, eBay’s stock increased only 7.5% to $112 in premarket trading, well below the bid price, signaling investor skepticism about the deal’s completion. Meanwhile, GameStop’s shares declined by 6%. eBay confirmed it is evaluating the proposal, including whether GameStop can present a binding and actionable offer.
Analysts at Morgan Stanley emphasized the need for clearer financing details, cautioning that an all-stock transaction could be challenging to justify given the fundamentally different business models of the two companies. While eBay operates as a marketplace connecting buyers and sellers, GameStop follows a traditional retail model centered on inventory and physical stores.
They also noted that a leveraged buyout might be an alternative, though such a deal would likely become the largest of its kind, potentially surpassing the recently announced $55 billion acquisition involving Electronic Arts.
Acquisitions where smaller companies target significantly larger ones are uncommon. A recent example includes Skydance Media’s agreement to acquire Warner Bros. Discovery, supported by billionaire Larry Ellison.
Even if GameStop’s bid does not succeed, analysts believe it could attract other potential suitors to eBay. The company has recently shifted focus from mainstream e-commerce to niche markets such as collectibles, sneakers, and luxury fashion, contributing to a nearly 20% rise in its shares this year.
Cohen, a prominent figure in the 2021 meme-stock phenomenon and once likened to Warren Buffett by investor Michael Burry, may be aiming to accelerate GameStop’s growth ambitions, including raising its valuation to $100 billion. Burry suggested the strategy might prioritize dominating the collectibles and resale market rather than directly challenging Amazon, while warning that substantial debt could restrict GameStop’s operational flexibility moving forward.
