“Neither credible nor attractive.” No, not a line from a junior minister’s resignation letter on Tuesday. It was eBay’s succinct appraisal of the bizarre $55.5bn (£41bn) takeover offer from video games retailer GameStop, an affair that offers light distraction from the sight of UK 10-year gilt yields at 5%-plus.
To recap: 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. But, crucially, 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 best of times?
If the answer is supposed to be the chance to install Cohen as their new chief executive, the would-be visionary surely has to offer a better alternative strategy for eBay than cutting the marketing budget in half and hoping for cross-over benefits between eBay’s online operation and GameStop’s 1,600 stores.
“The more [eBay] fights me, the more … I’m not going to take no for an answer,” Cohen told the FT last week. “I’m not going away. I’m a pain in the ass.” One hopes he means it, because it would imply a formal hostile bid for eBay, providing hours more entertainment – and perhaps even a repeat of his wonderfully surly interview with CNBC on day one of this saga.
It is semi-obligatory to say one should not underestimate GameStop or Cohen, because the 2021 stock-buying frenzy was a genuine against-the-odds coup. On this occasion, however, he would seem to lack the necessary momentum. GameStop’s shares are down since the start of the latest adventure, suggesting even the fanclub has its doubts. Meme-style short squeezes are one thing; a hit-and-hope $56bn reverse takeover bid may, in the word of the day, be untenable.
