GameStop, the video game retailer that became a household name during the 2021 meme stock frenzy, has seen its audacious $55.5 billion (£41 billion) takeover offer for eBay swiftly rejected. eBay described the bid as 'neither credible nor attractive', providing a moment of levity amid the backdrop of rising UK 10-year gilt yields exceeding 5%.
The Rise of GameStop and the Meme Stock Phenomenon
GameStop's fame originated from a coordinated effort by amateur traders on a Reddit forum, who rallied to drive up the company's stock price and punish short-sellers betting on its decline. This short squeeze propelled GameStop's share price a hundredfold, causing significant losses for hedge funds and elevating CEO Ryan Cohen to an anti-establishment hero status.
Despite expectations of a collapse, GameStop has managed to survive and even show improved trading numbers. However, its market capitalization stood at only $11 billion at the start of the month when Cohen proposed the acquisition of eBay, a company four times its size. The offer was set at $125 per share, to be funded equally through cash and the issuance of new GameStop shares.
eBay's Rejection and Credibility Concerns
The eBay board deemed the proposal more absurd than audacious, a stance that seems justified. Of the $28 billion in cash promised, $20 billion relies on a non-binding expression of confidence from Canadian TD Bank, contingent on GameStop securing an investment grade rating from two major credit agencies—a prospect uncertain given the required financial leverage. This lack of concrete backing likely explains eBay's reference to a credibility deficit.
Furthermore, eBay sees no need for a deal. Despite criticisms of board overcompensation, eBay's shares have risen 50% over the past year, making a swap into GameStop stock unattractive for shareholders. GameStop's stock is notoriously volatile and difficult to value, offering little incentive for a trade.
Cohen's Vision and Hostile Bid Potential
If the rationale for the deal is to install Cohen as CEO, he would need to present a more compelling strategy than merely halving eBay's marketing budget and hoping for synergies between eBay's online operations and GameStop's 1,600 physical stores. Cohen has stated he will not take no for an answer, suggesting a possible hostile bid. Such a move could provide further entertainment, reminiscent of his combative CNBC interview at the onset of this saga.
While one should not underestimate GameStop or Cohen—given their 2021 success—this endeavor lacks similar momentum. GameStop's shares have declined since the bid announcement, indicating even loyal fans have doubts. Meme-style short squeezes are one thing; a $56 billion reverse takeover bid may prove untenable.
