GameStop Offers $56B for eBay in Hostile Bid

GameStop has made an unsolicited offer to acquire eBay for approximately $56 billion, according to multiple reports. The proposal, announced on Sunday, values eBay at $125 per share in a cash-and-stock deal, representing a premium of about 20% over eBay's Friday closing price.

The offer comes from GameStop CEO Ryan Cohen, who is also the company's largest investor. In a letter to eBay's board, seen by Reuters and HuffPost, Cohen outlined plans to cut $2 billion in annual costs within 12 months of the deal closing. He suggested that these cost reductions would significantly increase the combined company's earnings per share.

The proposal includes using GameStop's approximately 1,600 U.S. retail stores as a network for authentication, intake, fulfillment, and live commerce capabilities for eBay. Cohen told the Wall Street Journal that putting eBay and GameStop under one roof would create huge opportunities to improve earnings and cut costs, potentially making the combined company a legitimate competitor to Amazon.

GameStop has already built up a 5% stake in eBay through shares and derivatives, according to Reuters. The company has also secured a commitment letter for about $20 billion in debt from TD Bank, with potential backing from external investors including Middle Eastern sovereign wealth funds. Cohen indicated he is prepared to pursue a proxy fight if eBay's board is not receptive to the proposal.

EBay confirmed the offer on Monday and stated there had been no prior discussion or outreach with GameStop before receiving the offer. The potential deal would upend the usual M&A playbook, as it is rare for a company to target one nearly four times its size. Such deals typically rely on substantial debt, stock issuance, or both, banking on future earnings of the combined company to justify the cost.

Shares of eBay jumped over 7% but remained below GameStop's offer price in premarket trading on Monday, signaling investor skepticism about the bid. GameStop shares were down nearly 8%. Analysts at Bernstein highlighted significant financing challenges due to GameStop's smaller balance sheet and the scale of debt and equity required for such an acquisition.

Prediction markets traders are skeptical about GameStop's ability to complete the acquisition. On Kalshi, traders give GameStop a 26% chance to pull off the acquisition by 2026, with low trading volume of just over $2,000. Traders on Polymarket were even less optimistic, giving GameStop only a 15% chance. Michael Burry, known for predicting the 2008 financial crisis, also expressed doubt about the feasibility of such an acquisition.

The offer consists of half cash and half stock buyout, with around $9 billion in cash and a debt load of $4.2 billion. Cohen argued he could replicate his cost-cutting playbook at GameStop to boost eBay’s profitability. He would serve as CEO of the combined company and be compensated based on its performance.

Morgan Stanley analysts noted that an all-stock alternative could be a hard sell to investors, given the fundamentally different business models of the two companies. They also mentioned that a leveraged buyout would make this one of the largest ever, surpassing recent transactions like Electronic Arts' $55 billion deal.

GameStop’s shares fell more than 10% on Monday as questions emerged about how the company would finance its surprise $55.5bn bid for eBay. In an interview with CNBC, Ryan Cohen skirted repeated inquiries about how the video games retailer could afford the deal, saying he didn’t understand the questions.