Meme stock GameStop bids $56B for eBay to rival Amazon
What's the story
GameStop, the popular video game retailer that turned into a 2021 meme stock sensation, has made an unsolicited $55.5 billion bid to acquire eBay. The proposed deal values eBay at $125 per share, a 20% premium over Friday's closing price. GameStop CEO Ryan Cohen said he would be the chief executive of the combined entity and promised to deliver $2 billion in annualized cost reductions within 12 months of closing the deal.
Deal structure
Funding and market cap considerations
The proposed deal is a cash-and-stock transaction, with half the payment in cash and the other half in GameStop common stock. The company has also secured a commitment from TD Bank for around $20 billion in debt financing to fund the deal. This is a unique case of a company trying to acquire one nearly four times its size. As of Friday, GameStop had a market cap of $12 billion while eBay was much larger at around $46 billion.
Financial strategy
Targeted cost reductions and their impact
Cohen has promised to cut $2 billion in annual costs within a year of closing the deal, targeting eBay's sales and marketing budget. He also plans to reduce costs by consolidating general and administrative functions and trimming product development expenses. These reductions alone are expected to drive eBay's diluted earnings per share from $4.26 to $7.79 in the first year, according to GameStop's statement.
Future plans
Future vision and challenges
Cohen envisions turning eBay into a company worth hundreds of billions of dollars. He said, "EBay should be worth, and will be worth, a lot more money." However, it's unclear if eBay's board will consider GameStop a credible buyer for a company four times its size. GameStop CEO plans to turn eBay into a rival to Amazon.