GameStop Takes On eBay, Which Is 4 Times Its Size, With $56 Billion M&A Proposal

GameStop became a household name during a meme-stock frenzy ‌five years ago. Its market value is nearly $12 billion.

GameStop has made a bid to acquire eBay in a $56 billion cash-and-stock deal, confirmed CEO Ryan Cohen, who added that he was prepared to approach the shareholders directly if the eBay Board does not approve of the takeover. GameStop is offering $125 per share in a 50-50 mix of cash and stock, a 20% premium based on eBay’s Friday closing price.

GameStop became a household name during a meme-stock frenzy ‌five years ago. Its market value is nearly $12 billion. eBay, on the other hand, has a market capitalisation nearly four times larger than GameStop, with $46 billion, making the proposal for this acquisition quite ambitious. The video game retailer has built up a 5% stake in eBay through shares and derivatives, and its shares have gained 32.1% this year, compared to eBay’s 19.5%.

Cohen believes that a merger between the online retailer and GameStop will open up opportunities to improve earnings and cut costs. He is also hopeful of raising the video game company’s market value more than ten times its current price. Cohen also thinks that such an M&A venture will also reshape eBay to emerge as a major market player, and could even stand neck to neck with giants like Amazon.

The acquisition will also lead to a $2 billion cut of eBay’s annualised costs within the first year of the deal being finalised. This would increase the company’s earnings per share. GameStop has around 1600 stores across the US, which would open avenues for authentication, intake, fulfilment, and live commerce at the national level for eBay.

Cohen, who is willing to initiate a hostile takeover if eBay does not cooperate with the acquisition, is known as the ‘meme king’ in the industry, and he also has a reputation for taking bold bets which can move markets. He played a significant part in the 2021 meme stock frenzy, and he holds a considerable level of influence over individual investors online. He is confident that eBay will be worth billions of dollars once the takeover is completed.

GameStop targeting a company which is nearly five times its size may not be common in the M&A playbook, but it is keeping in line with Cohen’s taste for making unconventional bets. Such deals often rely on a combination of future earnings of the merged venture, large debts and stock issuances. Cohen has some financial backing in the pipeline, such as a commitment letter for about $20 billion in debt from TD Securities, a subsidiary of TD Bank.

As of January 31, the video game retailer has approximately $9.4 billion in cash and liquid investments, and the CEO has confirmed that the cash part of this proposed deal will be financed using this capital, along with third-party equity and debt financing. It is also likely that GameStop could seek financial support from certain Middle Eastern sovereign wealth ​funds.

When Cohen joined the board in January 2021, GameStop was struggling to transition to digital downloads and online shopping. He then rose to the position of CEO, where he pushed for large cost reductions that turned the business viable. He also plans to continue as CEO of the newly merged venture.

The brick-and-mortar industry, which was formerly a mainstay for in-store players, suffered greatly as consumers shifted to online gaming during the pandemic. After hedge fund short sellers ruined the stock in 2021, a horde of individual investors purchased it, propelling GameStop to international fame. Right now, its stock has increased by over 1,700%.

The Grapevine, Texas-based corporation still struggles with fundamental changes in the gaming industry despite Cohen’s promises to turn things around. Last month, GameStop revealed a 14% decline in revenue for the fourth quarter.

On the contrary, eBay, which was launched in 1995, beat Wall Street estimates for the second quarter as a result of strong demand for collectables, motor accessories and livestreamed auctions. Regardless of numbers, the market is constantly changing, and while most investors like to play it safe, the riskiest of bets is what keeps the financial world on its toes.