U.S. video game store chain GameStop said it will buy first-generation e-commerce corporations eBay outright. It is a hostile mergers and acquisitions (M&A) declaration targeting a company nearly four times its own size.
On the 3rd (local time), according to reports including the Wall Street Journal (WSJ), GameStop Chief Executive Ryan Cohen sent eBay an acquisition offer worth about $56 billion (about 82.48 trillion won). At $125 per share, the price is roughly a 20% premium over the previous trading day's, the 1st's, close of $104.07. Based on the Feb. 4 close, when GameStop began buying eBay equity, it is 46% higher. The consideration would be paid half in cash and half in GameStop stock.
Cohen said GameStop has already secured about 5% equity in eBay. He also made clear that if eBay's board rejects the offer, he will push it to a proxy fight to persuade shareholders directly. As of the market close on the 1st, GameStop's market capitalization was about $12 billion. eBay's was about $46 billion. The acquirer GameStop's market cap is only a quarter of eBay, the target.
GameStop symbolizes the meme stock frenzy that swept the U.S. stock market in 2021. Previously just a little-known offline game retail chain, it gained global fame as a narrative of individual investors' revolt against hedge fund short sellers took hold. As retail investors flocked in via social media, the stock soared more than 1,700% in 2021 alone.
eBay began in 1995 as an internet auction site launched as a hobby by entrepreneur Pierre Omidyar. Along with Amazon, it stands as a first-generation e-commerce symbol that survived the dot-com bubble.
Wall Street buzzed at the prospect of a small offline game retailer swallowing a global marketplace. A $56 billion transaction is beyond what GameStop can shoulder with its own funds. GameStop said it had obtained a roughly $20 billion liability financing commitment letter from TD Securities, a subsidiary of Canada's TD Bank. Even adding about $9.4 billion in cash and liquid assets on hand as of Jan. 31 brings the total only to about $29 billion. The remaining $27 billion would need to be filled with GameStop stock exchange and outside investors. The WSJ raised the possibility that Cohen could bring in sovereign wealth funds from the Middle East.
Cohen said that after acquiring eBay, he plans to use roughly 1,600 GameStop stores across the United States as hubs where eBay sellers can drop off goods and get them authenticated. The idea is to expand a portfolio currently focused on game sales into transactions of scarce goods where authenticity matters, such as trading cards, sneakers, luxury goods, and retro items.
Cohen said in a WSJ interview that "we can make eBay a true competitor to Amazon." It is interpreted as a plan to target areas where Amazon is weaker—used goods, scarce items, and live commerce. Amazon's market capitalization is about $2.9 trillion, more than 60 times eBay's now.
Cohen proposed to eBay's board that within 12 months after the acquisition he would cut annual expenses by $2 billion and lift earnings per share from $4.26 to $7.79. He said, "eBay deserves, and will receive, more value," adding he plans to make it a company worth "hundreds of billions of dollars."
eBay may not match its former glory, but it still generates strong cash. Even after losing its high-growth payments business with the PayPal spinoff, it posted gross merchandise volume (GMV) of $22.2 billion in the first quarter, up 18% from a year earlier. Active buyers total 136 million, about one out of every three people in the United States. eBay shares jumped 13.4% in after-hours trading immediately after the acquisition reports, rising to about $118. That is below GameStop's offer price of $125.