eBay shares lag behind GameStop’s $56bn bid amid market doubts

CALIFORNIA: Shares of eBay lagged behind GameStop’s $56 billion takeover offer on Monday, reflecting deep investor skepticism over the feasibility of the ambitious deal.

GameStop CEO Ryan Cohen has proposed a half-cash, half-stock acquisition of the online marketplace, despite GameStop being significantly smaller, with a market value of about $12 billion compared to eBay’s much larger valuation.

The company holds roughly $9 billion in cash and carries $4.2 billion in debt, raising concerns about how it would finance the transaction.

Over the weekend, GameStop revealed it had already built a 5 per cent stake in eBay and secured potential debt financing of up to $20 billion from TD Securities in an effort to bolster confidence in the bid.

Cohen said he plans to apply GameStop’s cost-cutting strategy to improve eBay’s profitability while leveraging its network of about 1,600 US stores to create a physical retail presence, positioning the combined company as a stronger competitor to Amazon.

Despite the premium offer of $125 per share, eBay stock rose only 7.5 per cent to $112 in premarket trading, well below the bid price, a signal that investors doubt the deal will go through. Meanwhile, GameStop shares fell 6 per cent.

eBay confirmed it is reviewing the proposal, including whether GameStop can present a “binding, actionable” offer.

Analysts at Morgan Stanley said the market needs clearer details on financing, warning that an all-stock deal could be difficult to sell given the fundamentally different business models of the two companies.

While eBay operates as a marketplace connecting buyers and sellers, GameStop runs a traditional retail model based on inventory and physical stores.

They added that a leveraged buyout could be another option, but such a move would likely make it the largest deal of its kind, potentially surpassing the recently announced $55 billion transaction involving Electronic Arts.

Deals where smaller firms acquire significantly larger companies are rare. One recent example includes Skydance Media’s agreement to acquire Warner Bros. Discovery, backed by billionaire Larry Ellison.

Even if GameStop’s bid fails, analysts believe it could put eBay in the spotlight for other potential buyers. The company has recently repositioned itself away from mainstream e-commerce toward niches such as collectibles, sneakers, and luxury fashion, helping drive its shares up nearly 20% this year.

Cohen, a central figure in the 2021 meme-stock surge and once compared to Warren Buffett by investor Michael Burry, may also be aiming to accelerate GameStop’s growth targets, including boosting its valuation to $100 billion.

Burry suggested the strategy may be more focused on dominating the collectibles and resale market rather than directly competing with Amazon, while cautioning that heavy debt could limit GameStop’s flexibility going forward.