eBay on Tuesday turned down a $56 billion takeover offer from GameStop, citing concerns about how the deal would be financed, while reaffirming confidence in its ongoing turnaround strategy that has helped drive growth. Its chairman Paul Pressler described the proposal as “neither credible nor attractive”.
Market analysts and investors have questioned whether the proposal—structured as a mix of cash and stock, could succeed, given that GameStop, with a market value of about $12 billion, is attempting to acquire a company worth nearly four times as much.
How are eBay shares trading since bid announcement and what did Pressler say?
Since the bid was announced earlier this month, eBay shares have traded well below the offered price of $125 per share. Before the opening bell on Tuesday, eBay stock slipped 1% to $107, while GameStop shares dropped 4%.
According to Reuters, eBay‘s Pressler stated, “We have concluded that your proposal is neither credible nor attractive. eBay’s Board is confident the company, under its current management team, is well-positioned to continue to drive sustainable growth.”
GameStop did not immediately comment on eBay’s decision to reject its takeover proposal.
The rebuff could prompt GameStop to pursue a hostile bid, the report noted. Chief Executive Ryan Cohen has previously said he was prepared to take the offer directly to eBay shareholders, potentially by seeking a special meeting.
Cohen said he had secured a $20 billion debt financing commitment from TD Bank, although the funding depends on the merged company obtaining an investment-grade credit rating. Moody’s said last week that the proposed deal would be credit negative for eBay.
He has mentioned that combining GameStop and eBay would generate cost savings and operational synergies, creating a much larger business.
Cohen also said he could improve eBay’s profitability by applying GameStop’s cost-cutting measures and using its 600 US stores as a physical network to strengthen eBay’s ability to compete with Amazon.
The proposed transaction has attracted significant interest in an active mergers and acquisitions market, as well as among retail investors who regard Ryan Cohen as a prominent figure after his role in the 2021 short squeeze that inflicted heavy losses on hedge funds including Melvin Capital.
The bid has also sparked concern among some GameStop shareholders. Michael Burry, known for his role in “The Big Short”, sold his stake in the company following the announcement, cautioning that the acquisition could burden GameStop with substantial debt and dilute existing shareholders.
Although both eBay and GameStop sell collectibles such as trading cards, their core business models differ significantly. eBay operates as an online marketplace, generating revenue by charging fees to connect buyers and sellers without owning inventory, while GameStop purchases products wholesale and resells them through its network of physical stores.
Meanwhile, from the moment Ryan Cohen unveiled his takeover proposal, many on Wall Street reacted with skepticism, questioning how GameStop could acquire eBay, a company worth roughly four times more.
Cohen became GameStop’s chairman in 2021 and took over as CEO after the departure of his handpicked chief executive, a former Amazon executive, who was dismissed in June 2023.
During an interview on CNBC, The 40-year-old billionaire appeared in a black leather jacket and T-shirt but offered few details about how GameStop intended to fund the $56 billion transaction. When asked directly, he said the purchase would be financed through a combination of cash and stock, a brief response that was followed by several awkward pauses.
In a letter to eBay’s board, Cohen mentioned he would lead the merged company as chief executive and would forgo a salary, cash bonuses and any golden parachute compensation. He built his reputation and wealth after co-founding and later selling Chewy. He later made a major investment in GameStop when the retailer’s market value had fallen to about $250 million.
Source: Mint