GameStop’s CEO unexpectedly announced a bid to acquire the e-commerce platform eBay.
Ryan Cohen, CEO of the controversial company GameStop, said he intends to buy the well-known platform eBay for $55.5 billion. The acquisition of eBay is meant to be part of the company’s diversification strategy, aimed at creating “competition for Amazon.”
What’s controversial is not only the deal itself and its price. It is worth noting that eBay is currently valued at around $48 billion, meaning GameStop would be overpaying by roughly 20% from the outset. However, this is only the beginning of the tough questions, not the end.
It should also be recalled that eBay is currently larger by market capitalization than GameStop itself. This is not an insurmountable challenge in today’s financial markets, but the CEO’s strategy simply does not hold up against reality.
The purchase is supposed to be financed with 50% cash and 50% GameStop shares.
The cash portion, if we believe the CEO’s statements regarding financing from TD Securities, would amount to about $28–29 billion.
The problem arises with the equity portion: with GameStop’s market capitalization around $27 billion, the “50% in shares” component still leaves an estimated funding gap of about $15 billion.
The market appears only partially convinced about the deal. A bid at a ~20% premium is currently reflected in a valuation increase of about 6–7%, which, in very rough terms, implies around a 30% chance of the acquisition being completed.
For now, the prospect of buying eBay on these terms raises serious doubts, and comments from eBay itself remain very brief.
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