GameStop hits the limits of credibility with $55.5bn eBay bid | Nils Pratley

"GameStop is the meme stock company that became famous a few years ago when amateur traders on a Reddit forum piled in furiously in an attempt to burn the short-sellers who were betting on the struggling retailer's demise. Surprisingly, the Redditers succeeded beyond their wildest dreams. The squeeze drove up GameStop's share price hundredfold, inflicting hell on serious hedge funds and making the company's chief executive, Ryan Cohen, an anti-establishment hero. Even more surprisingly, GameStop is still around and showing better trading numbers."

"It was still worth only $11bn at the start of this month when Cohen announced an audacious proposal to buy the online marketplace eBay, a company four times its size, at $125 a share, to be funded half in cash and half by the issuance of an avalanche of new GameStop shares. The eBay board clearly takes the view that Cohen's pitch is more absurd than audacious, and you can't blame it."

"Of the advertised $28bn of cash in the offer, $20bn is represented by a non-binding expression of confidence from Canadian TD Bank that GameStop could raise the money if it gets an investment grade rating from two top credit agencies, a prospect that is far from certain given the financial leverage the transaction would require. That, presumably, is what eBay means by the credibility deficit."

"Nor does eBay obviously need a deal with anyone. Its board may be scandalously overpaid, as Cohen says, but most are in corporate America. The relevant fact is that eBay's shares have improved 50% in the past 12 months, so why on earth would its owners want to swap into GameStop stock, a currency that is hard to value at the b"

GameStop made headlines as a meme stock after Reddit traders drove a massive short squeeze that multiplied its share price and harmed hedge funds. Despite the frenzy, the company remained in business and later proposed buying eBay, a much larger retailer, for $125 per share. The offer would be funded half with cash and half through issuing a large number of new GameStop shares. eBay’s board rejected the pitch as implausible, noting that most of the cash depends on a non-binding bank expression of confidence and requires an investment-grade rating that is not assured. eBay also has no urgent need for a deal because its shares have risen significantly, and swapping into GameStop stock is difficult to value.

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