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UPDATE 5/12: eBay isn’t merging with GameStop, for now. The e-commerce platform has rejected GameStop’s unsolicited $56 billion takeover bid, calling it “neither credible nor attractive.”
EBay’s board confirmed the decision in a letter to GameStop CEO Ryan Cohen on Tuesday. The board’s primary concerns centered on how the deal would be financed, the operational risks involved post-acquisition, and the acquisition’s impact on eBay’s growth and valuation.
“EBay is a strong, resilient business that has delivered meaningful results over the past several years,” said Board Chair Paul S. Pressler. “EBay's Board is confident that the company, under its current management team, is well-positioned to continue to drive sustainable growth, execute with discipline, and deliver long-term value for our shareholders.”
Earlier this month, Cohen’s acquisition offer came as a shocker to many, given that his company generates only about one-third of eBay’s revenue. He wanted to serve as the CEO of the combined company, cut eBay’s expenses, and turn it into an entity worth hundreds of billions of dollars. His plan was to pay for 50% of the acquisition in cash and the other 50% in GameStop common stock. He claimed to have secured $20 billion in debt financing from TD Bank.
The possibility of the takeover can’t be ruled out completely yet. As Reuters reports, Cohen has already discussed making a direct offer to shareholders, and he may do so following GameStop's rejection. Cohen has yet to respond to the letter.
Original Story 5/4:
EBay is reviewing a $56 billion acquisition offer from GameStop, but called it an "unsolicited" bid, and stressed that it “had no discussions with or outreach from GameStop prior to receiving the proposal," signaling potential pushback.
"The Board will review this proposal with a focus on the value to be delivered to eBay shareholders, including the value of the GameStop stock consideration and the ability of GameStop to deliver a binding, actionable proposal," eBay says. For now, the company is advising eBay shareholders to take no action.
The acquisition offer, first reported on Friday, could reinvent GameStop, best known for selling video games and trading cards. But the deal is shocking and puzzling, considering that GameStop generates about a third of eBay's revenue, making it a case of a smaller company trying to buy a larger player. Still, GameStop says it’ll pay $125 per eBay share, when the company’s stock price was trading at $104 before the acquisition news.
GameStop CEO Ryan Cohen is also betting he can transform eBay into a more lucrative company. “I’m thinking about turning eBay into something worth hundreds of billions of dollars,” he told The Wall Street Journal. TD Bank is providing up to $20 billion in debt financing, while GameStop has about $9.4 billion in cash, Cohen says.
The plan is to pay 50% cash and 50% in GameStop common stock. Cohen also wants to serve as CEO of the combined company with the goal of cutting eBay’s spending. “We will take $2 billion of annualized costs out within twelve months of close: $1.2 billion from Sales & Marketing, $300 million from Product Development, and $500 million from General & Administrative,” he told eBay’s board chairman in a letter.
Still, financial analysts told MarketWatch they’re doubtful the deal will go through because GameStop’s market cap is currently $11 billion. Thus, the company would need to issue approximately 1 billion new shares to reach the $56 billion financing target. But this would dilute GameStop for existing stockholders.
GameStop’s CEO refused to elaborate on the math behind the financing during an interview with CNBC. On Monday morning, the company's stock took a 7% dive. Cohen also stands to make a fortune if the deal goes through, thanks to an incentive program that offers rewards if GameStop reaches a higher market cap.