eBay tells GameStop to keep the carpet: $56bn bid “neither credible nor attractive”

Ryan Cohen offered $125 a share, partly to be funded by a $20bn TD Securities commitment letter and, briefly, by selling old store signs on eBay itself. The eBay board, which had to ban and then unban him during the process, says no.

eBay has formally rejected GameStop’s $56bn takeover bid, telling the video-game retailer’s CEO Ryan Cohen on Tuesday that his proposal is “neither credible nor attractive.”

Paul Pressler, the chairman of eBay’s board, set out the rejection in a letter that was unusually direct by the standards of US M&A correspondence. “

The Board, with the support of its independent advisors, has thoroughly reviewed your proposal and has determined to reject it,” Pressler wrote.

The board cited uncertainty around GameStop’s acquisition financing and the leverage and operational risks of combining the two businesses.

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Cohen’s offer, unveiled on 4 May, was a cash-and-stock proposal at $125 per eBay share, a 20% premium to the previous close. The cash half was to be funded by a $20bn commitment letter from TD Securities.

The letter, which Cohen made public, came with a condition that the combined company would need to retain an investment-grade credit rating after the deal closed. Moody’s promptly described the proposed acquisition as “credit negative” for eBay because of the leverage implied. Without an investment-grade rating, the TD facility would not draw.

There was also a separate, unconventional funding component. On 7 May, Cohen announced on X that he intended to sell items from his GameStop office, including store signs and old carpet, on eBay’s own marketplace to help fund the bid. Calculations done at the time suggested the listed items would have raised approximately $138,000 against the $56bn purchase price.

eBay suspended Cohen’s seller account within ten hours of his post. The account was subsequently reinstated on 8 May after eBay determined the suspension had been triggered by automated systems.

The episode briefly produced the spectacle of the target of a $56bn takeover banning the bidder from its own platform, then reversing.

Investor reaction has been mixed. Michael Burry of Scion Asset Management closed his GameStop position shortly after Cohen’s announcement, telling CNBC: “Never confuse debt for creativity.”

GameStop shares have fallen since the bid was made public; eBay shares have held above the $125 offer level for parts of the past week, suggesting market participants assigned low probability to the deal completing.

Cohen has indicated he is willing to take the offer directly to eBay shareholders through a special meeting, but the path to a hostile bid runs through the same financing obstacle that prompted the board’s rejection.

A combined GameStop-eBay entity with $20bn of additional acquisition debt is widely considered unlikely to retain an investment-grade rating, which would void the TD letter and leave roughly half the offer unfunded.

GameStop’s existing business is significantly smaller than eBay’s. GameStop ended the most recent fiscal year with roughly $4bn of revenue against eBay’s $10.3bn. The cash portion of the proposed deal exceeds GameStop’s current market capitalisation.

The structural mismatch has been at the centre of the analyst commentary since the bid was announced.

GameStop has not yet commented on the rejection. Cohen’s public statements over the past week have focused on his commitment to the deal and his willingness to engage directly with shareholders. eBay’s board has not commented beyond Pressler’s letter.

The episode adds to the list of unconventional moves Cohen has run since taking over GameStop. The company’s earlier transformations, the meme-stock cycle of 2021, the move into NFTs and back out again, and a sustained programme of cost-cutting and treasury management, have all played out in public view.

The eBay bid was always going to be the largest such move; it appears to have concluded earlier than Cohen would have preferred.