THE GIST
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The meme-stock deal of the decade might just be crashing into reality. Ryan Cohen’s quixotic bid for eBay got a stern response from the original online marketplace: No thanks.
eBay called the GameStop CEO’s $56 billion bid “neither credible nor attractive,” which is about as close to saying “f— off” as corporate rejection letters come. eBay chairman Paul Pressler, a longtime private equity partner, cited, rather charitably, “uncertainty” regarding the deal’s financing and concerns over the debt load in a Tuesday morning letter.
WHAT HAPPENED
Let’s walk through the deal to see where each side’s coming from.
GameStop offered $125 per share, valuing eBay at $56 billion. The stock is trading around $108 Tuesday morning, so Cohen’s bid well exceeds eBay’s $48 billion market cap. And eBay itself is nearly five times larger than GameStop, which has a $10.3 billion market cap. That makes the deal math obviously hard to swallow for anyone not named Ryan Cohen or the horde of retail investors he’s managed to convince he’ll make rich, if only Wall Street could see why this is a brilliant acquisition.
Cohen produced a financing letter from TD Securities, which says it lined up about $20 billion in financing. GameStop, for what it’s worth, also has about $9 billion in cash on the balance sheet, a significant war chest that breaks down to about $20 per share. But any third grader can tell you that 20+9 < 56, which means that GameStop would have to issue stock to cough up enough to close the deal.
That fact led to a contentious CNBC interview last week where Cohen refused to elaborate on the terms of the deal, telling host Andrew Ross Sorkin that it’s “half cash, half stock” and that Sorkin should simply check GameStop’s website for further details.
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The real answer Cohen didn’t want to give on air is dilution. GameStop would likely have to triple, or even quadruple share count to fund the deal and make eBay shareholders happy. And Cohen, who founded the pet food company Chewy and sold it for nearly $3.4 billion to PetSmart in 2017, is used to taking big swings.
He believes he can aggressively cut eBay’s costs, fire employees, and create “operational efficiencies” by using GameStop’s 1,600 U.S. locations to fulfill eBay orders, according to the letter to shareholders posted on the company’s website. That, the company says, would result in $2 billion in annualized cost savings, by wiping out $1.2 billion on marketing spend, $300 million from product development, and $500 million from G&A by consolidating the traditional back-office functions of compliance, HR, accounting, etc. That would increase earnings per share from $4.26 to $7.79 in the first year, per GameStop’s team.
