GameStop Wants to Buy eBay

GameStop, the video game retailer currently valued at somewhere around $11 billion, this week announced a bid to purchase eBay for $56 billion in cash and stock.

GameStop CEO Ryan Cohen is an activist investor known for making aggressive plays. In 2022, he made a play to acquire Bed, Bath & Beyond before that company went bankrupt. His plan was reportedly to spin off Buy Buy Baby as a stand-alone eCommerce site, but instead he butted heads with the Bed Bath board and divested himself of his nearly 11% of the company stock. The company declared bankruptcy in April 2023.

Cohen was part of the GameStop short squeeze in 2021, which briefly pushed the share price as high as $483. It’s currently sitting at a little under $25, more in line with its historical value but still a fairly high valuation given the company’s assets.

YouTube financial analyst Patrick Boyle released a fairly thorough look at the GameStop offer, why it does and doesn’t make sense, and how likely it is to actually happen. You can see that below.

In short, he argues that part of the reason Cohen is so keen to put GameStop in a highly-leveraged position is that his compensation package allows for a huge bonus if he can take GameStop’s total market capitalization over $100 billion. Overpaying for eBay shares would get him more than halfway there, and while the company itself would be in debt, its valuation would still be high.

This is, of course, not the first time recently that a company has attempted to take on a massive debt load to merge with a larger competitor. When Discovery acquired Warner Bros., they had to be about 500% leveraged to do so. There was also a massive size disparity between Skydance and Paramount — but a lot of that was covered by Skydance’s David Ellison going to his dad for a handout. That gave Skydance a much bigger pile of cash to work with.

eBay has not yet responded to Cohen’s offer. Unlike Paramount and Warner Bros., eBay is not desperate to be acquired, which could certainly make the situation more like Bed Bath & Beyond.

That said, for years now GameStop’s valuation has been artificially inflated due to interest from retail stockholders who will never, under any circumstances, sell their stock. You can see more on that in Dan Olson’s terrific documentary This is Financial Advice:

There’s certainly a pretty sizable overlap between GameStop’s customer base and product offerings, and eBay’s. It’s certainly a better fit than Bed Bath & Beyond for a potential sister company, and Cohen himself has laid out some legitimate reasons for the marriage — chief among them being that collectibles could be authenticated without being put in the mail first.

So, while the eBay acquisition feels like an unlikely one, it does have a real use case for both eBay and GameStop shareholders, at least in theory. We’ll see if that’s enough to get a deal done.