When a business that is only a fifth the size of its target stands up and declares that it still wants to purchase the larger one, a certain kind of silence descends upon the trading floor. This week, GameStop has been plagued by that silence. The stock closed Thursday at $23.97, down 4.77% for the day. Investor sentiment is more akin to a slow, group squint at the numbers than to a panic.
A non-binding offer to purchase eBay for $125 per share has been made by Ryan Cohen, the CEO who transformed GameStop from a meme into something that almost resembles a regular business. This puts the market’s value at about $56 billion. On the day the bid was made, GameStop’s own market capitalization was roughly $11 billion. Even though the math is blatantly ridiculous, we are still watching it unfold in real time on Substack and cable news.
It gets weird in the financing story. The deal would rely on approximately $9.4 billion in cash, $9 billion in GameStop equity, and at least $20 billion in new debt, with TD Securities allegedly providing a financing letter for that final component, according to filings and reporting. Additionally, GameStop has surreptitiously acquired a 5% economic stake in eBay through shares and derivatives, providing Cohen with what he probably views as a foothold. Fairly, Morgan Stanley analysts have pointed out that if this were structured as a leveraged buyout, it would be the biggest LBO in history, surpassing even the recently announced $55 billion Electronic Arts deal. Anyone should pause after reading that sentence.
Michael Burry is another. The same Burry who, in January, wrote breathlessly on Substack about GameStop as a young Berkshire Hathaway in waiting and Cohen as a sort of contemporary Buffett. After four months, he resigned from the entire job. “Any which way I sliced it, the Instant Berkshire thesis was never compatible with greater than 5x Debt/EBITDA,” he said. His note has an almost melancholy quality. With a hint of self-awareness, he even acknowledges that “Wall Street does indeed mistake debt for creativity,” but he goes on to say, “I of all people should have known.” That statement is unsettling coming from a man who was among the first to recognize the housing crisis.
The publicity surrounding Cohen’s campaign has not improved. Following the announcement of the bid, he started listing personal items on eBay, including a piece of carpet taken from a GameStop store and used socks, according to his own posts. Citing community risk, eBay suspended his seller account. Shortly after, the suspension was lifted. The entire episode reads more like a man having a little too much fun in front of a crowd than it does like a billionaire pulling a practical joke. The contrast with the gravity of the figures below is difficult to ignore.
The daily work continues inside GameStop’s approximately 1,600 US locations. Most employees are unaware that their company is attempting to absorb one of the original giants of the internet, and they continue to ring up trade-ins and unbox shipments under fluorescent light. According to Cohen’s concept, those stores would serve as actual pickup and delivery locations for an eBay that has been revived as a serious rival to Amazon. It’s a neat tale. On paper, it is also quite different from what GameStop has been doing for the past ten years.
As expected, retail traders have returned. The bid day was one of the busiest single-day buying sessions for GME in the previous year, according to Vanda Research. “GameShire Hathebay” has already been coined in Reddit threads, which is amusing until you consider that actual money is being made on this. In contrast, eBay’s stock is currently trading close to $108, which is significantly less than the $125 offer. This spread serves as a sort of ongoing survey to determine whether or not investors genuinely think this will occur. Even believers seem to be taking precautions.
If the board refuses to participate, Cohen has hinted that he might present the idea directly to eBay shareholders. He has a personal incentive to go for something this big because of his January compensation package, which is linked to a $100 billion market cap target. Burry decided he didn’t want to keep asking whether that motivation is in line with or at odds with regular GME holders. The market as a whole still needs to.