GameStop has mounted a long-shot bid to acquire eBay, making a non-binding proposal to buy 100% of the company for half cash, half GameStop stock. The proposed purchase price amounts to about $55.5 billion at $125 per share, a big premium to recent share prices.
GameStop had about $9 billion in liquid assets on its balance sheet at the end of the year (see “GameStop Closed 727 Stores”); it has a $20 billion “highly confident” financing letter from TD Securities, and has also floated the idea of issuing more stock to raise additional cash.
GameStop says it owns 5% of eBay now through derivatives and stock purchases, and that the $125 share price in its offer is a 46% premium to the “unaffected” share price before GameStop started acquiring stock on February 4.
GameStop is promising stockholders that it will cut $2 billion per year in expenses at eBay, from sales and marketing, product development, and general and administrative costs. GameStop CEO Ryan Cohen would be the CEO of the combined companies. Cohen has stemmed GameStop losses and brought the company back to profitability on declining sales by moving more aggressively into collectibles and massive cost-cutting, including 727 stores closed just last year.
Traders seemed skeptical: eBay stock went up from about $104 at the close last Friday to $109 at the close Monday, well below the offer price. GameStop shares were down about 10% on Monday.
GameStop is seeking to acquire a much larger, more profitable company. GameStop made a profit of $418.4 million on sales of $3.6 billion in its fiscal year ended January 31, while eBay showed a profit of $2.0 billion on sales of $11.6 billion for the year.
Source: ICv2
