When the Meme Stock Walked Into M&A

There are certain corporate stories you find yourself double-checking to make sure they’re not made up.

This week brought one of them.

GameStop – best known these days as the original meme stock – has launched a $55.5 billion bid for eBay; a company roughly four times its size. It’s using a mixture of cash, shares, and a sizeable amount of borrowed money reportedly backed by TD Securities.

At first glance, it feels a bit surreal. A company still strongly associated with shopping-centre video game shops attempting to buy one of the internet’s largest marketplace platforms is not the sort of sentence most analysts expected to write this year. It’s like hearing CEX launching a takeover of M&S!

Naturally, markets are struggling to decide whether this is ambitious, absurd, or somehow both, at the same time.

So, What Are GameStop Actually Trying to do?

Ryan Cohen, GameStop’s chairman and chief executive, believes that eBay has become undervalued, under-managed, and drifting along without much sense of direction.

His proposal values eBay at roughly $125 per share – a decent premium to where it was trading – and promises around $2 billion of cost savings, largely through operational efficiencies and reduced spending.

The awkward detail is that GameStop itself is considerably smaller than eBay.

Which means this deal would rely heavily on leverage – reportedly around $20bn.  In effect, GameStop would be borrowing against eBay’s future cashflows to fund the acquisition itself.

Analysts, understandably, aren’t entirely relaxed about this. Most reactions sit somewhere between “that seems optimistic” and the sort of horror normally reserved for someone microwaving fish in a shared office kitchen.