GameStop Increases Stake in eBay to 6.5% Amid Acquisition Pursuit
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 41 minutes ago
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Should l Buy GME?
Source: seekingalpha
- Increased Stake: GameStop has boosted its economic stake in eBay to 6.5%, reflecting CEO Ryan Cohen's ongoing interest in an acquisition despite the board's rejection of his offer.
- Sharp Rhetoric: Cohen has intensified his criticism of eBay's board, labeling them a 'group of losers' and questioning executive compensation, while hinting at potential proxy fight measures to compel eBay to reconsider the acquisition proposal.
- Market Reaction: eBay's shares rose 3.5% in Wednesday trading, reaching a new 52-week high of $118.83, with a market cap exceeding $50 billion compared to GameStop's $9.9 billion, indicating market attention on the acquisition dynamics.
- Analyst Insights: Wedbush Securities analysts suggest that while eBay may successfully resist the current proposal, GameStop's continued stake accumulation provides optionality for a proxy fight, potentially pressuring eBay to accelerate capital returns or operational improvements to defend its valuation.
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About GME
GameStop Corp. offers games and entertainment products through its stores and ecommerce platforms. The Company operates in four geographic segments: United States, Canada, Australia and Europe. Each segment consists primarily of retail operations, with the significant majority focused on games, entertainment products and technology. The Company has a total of approximately 3,203 stores across all of its segments: 2,325 in the United States, 193 in Canada, 374 in Australia, and 311 in Europe. Its stores and ecommerce sites operate primarily under the names GameStop, EB Games and Micromania. Its Australia and Europe segments also include 38 pop culture-themed stores selling collectibles, apparel, gadgets, electronics, toys and other retail products for technology enthusiasts and general consumers in international markets operating under the Zing Pop Culture brand. Its retail stores are generally located in strip centers, shopping malls and pedestrian areas.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
GameStop Increases Stake in eBay to 6.5% Amid Acquisition Pursuit
- Increased Stake: GameStop has boosted its economic stake in eBay to 6.5%, reflecting CEO Ryan Cohen's ongoing interest in an acquisition despite the board's rejection of his offer.
- Sharp Rhetoric: Cohen has intensified his criticism of eBay's board, labeling them a 'group of losers' and questioning executive compensation, while hinting at potential proxy fight measures to compel eBay to reconsider the acquisition proposal.
- Market Reaction: eBay's shares rose 3.5% in Wednesday trading, reaching a new 52-week high of $118.83, with a market cap exceeding $50 billion compared to GameStop's $9.9 billion, indicating market attention on the acquisition dynamics.
- Analyst Insights: Wedbush Securities analysts suggest that while eBay may successfully resist the current proposal, GameStop's continued stake accumulation provides optionality for a proxy fight, potentially pressuring eBay to accelerate capital returns or operational improvements to defend its valuation.
See More
GameStop Increases Stake in eBay to 6.55%
- Increased Stake: GameStop disclosed in a filing that it has raised its stake in eBay to approximately 6.55%, up from around 5%, indicating confidence in eBay's future and strategic positioning.
- Rejected Acquisition Proposal: eBay rejected GameStop's $56 billion takeover bid due to concerns over financing, highlighting its focus on turnaround efforts and improving growth, which may impact GameStop's acquisition strategy.
- Management Engagement: GameStop CEO Ryan Cohen suggested that if eBay fails to engage positively with the acquisition proposal, he may push for a special shareholder meeting to seek board representation more aligned with his proposal, thereby increasing his influence at eBay.
- Shareholder Interests: Cohen emphasized in an interview that eBay's board has a responsibility to act in the best interests of shareholders, indicating that GameStop will take necessary actions to ensure its proposal is adequately considered, potentially raising market interest in eBay's governance structure.
See More
GameStop Expands Economic Exposure to eBay via Derivatives
- Increased Economic Exposure: GameStop has raised its economic exposure to eBay from approximately 22.2 million shares to 29.1 million shares, now holding about 6.55% of eBay's outstanding shares, reflecting increased confidence in its investment strategy.
- Options Structure Details: The investment is structured through derivative-linked put/call options with strike prices ranging from $84.74 to $114.96, potentially providing GameStop with greater market flexibility and profit opportunities.
- CEO's Activist Strategy: GameStop CEO Ryan Cohen's activist campaign against eBay has garnered significant market attention, as he criticizes eBay's cost structure and identifies substantial cost-cutting opportunities, which could lead to strategic changes if he gains control.
- Market Performance Comparison: Year-to-date, GameStop's stock has risen by 10%, while eBay's has increased by 31%, indicating differing market expectations for the future of both companies, with GameStop's expansion strategy potentially influencing its stock performance.
See More
GameStop's Renewed Pursuit of eBay Amid Cost-Cutting Proposals
- Derivative Strategy: GameStop's recent SEC filing reveals an increased economic exposure to eBay of approximately 6.55%, with direct ownership of 25,000 shares and over 29 million additional shares through options, indicating a sustained investment interest in eBay.
- Acquisition Proposal Rejected: Despite GameStop's $56 billion acquisition proposal, eBay has rejected it, stating that the offer is “neither credible nor attractive,” presenting significant hurdles for GameStop's acquisition ambitions.
- Cost-Cutting Plan: CEO Ryan Cohen has proposed nearly $2 billion in annual cost reductions aimed at enhancing eBay's profitability by cutting advertising, administrative, and product development expenses, although analysts express concerns about GameStop's ability to secure $20 billion in financing for the deal.
- Market Sentiment Analysis: While GameStop's stock has gained 10% this year, eBay's shares have surged over 31%, and retail sentiment on Stocktwits remains bearish towards GameStop, reflecting cautious investor attitudes towards its acquisition strategy.
See More
GameStop's Bid for eBay Faces Credit Rating Challenges
- Significant Debt Risk: Moody's analysis indicates that GameStop's acquisition of eBay could result in total debt soaring to approximately $31.4 billion, representing an over 400% increase relative to eBay's standalone capital structure, which significantly raises the company's financial risk and impacts its credit rating.
- Interest Expense Pressure: The annualized incremental interest expense associated with the new debt is estimated to exceed $1 billion, assuming interest rates are higher than eBay's current weighted average cost of borrowing (around 5%-6%), further constraining the company's cash flow.
- Cash Flow Constraints: eBay is projected to generate approximately $900 million in free cash flow in 2025, while GameStop is expected to report around $600 million, and considering the cash costs to achieve targeted cost savings, the pro forma free cash flow will be significantly constrained, impacting operational flexibility.
- Synergy Targets: GameStop aims to achieve approximately $2 billion in annualized synergies within 12 months post-close, with 60% from sales and marketing, 25% from general and administrative, and 15% from product development, which, if fully realized, could help alleviate the debt burden.
See More
Prediction Markets Surge as Retail Investors' New Favorite
- Surge in Participation: Since the 2024 presidential election, monthly notional volume for prediction markets has skyrocketed to over $24 billion, up from less than $5 billion a year ago, indicating strong interest from retail investors in this emerging market.
- Enhanced Competitiveness: The trading volume of prediction markets is now close to that of leveraged exchange-traded products, although it still falls short of the S&P 500's 0DTE options market, which saw nearly $57 trillion in total value traded in March, highlighting the potential of prediction markets in high-risk investment sectors.
- Driven by Younger Investors: A Northwestern Mutual study found that nearly a third of Gen Z and almost a quarter of millennials are currently engaging in prediction markets or sports betting, suggesting that this market is attracting younger investors and may serve as a bridge to equity trading.
- Diverse Trading Opportunities: Prediction markets are considered more approachable due to their binary outcomes and broad range of events to trade, with KKM Financial's Jeff Kilburg noting that this diversity encourages retail investors to participate, further fueling market growth.
See More
GameStop Increases Stake in eBay to 6.5% Amid Acquisition Pursuit
- Increased Stake: GameStop has boosted its economic stake in eBay to 6.5%, reflecting CEO Ryan Cohen's ongoing interest in an acquisition despite the board's rejection of his offer.
- Sharp Rhetoric: Cohen has intensified his criticism of eBay's board, labeling them a 'group of losers' and questioning executive compensation, while hinting at potential proxy fight measures to compel eBay to reconsider the acquisition proposal.
- Market Reaction: eBay's shares rose 3.5% in Wednesday trading, reaching a new 52-week high of $118.83, with a market cap exceeding $50 billion compared to GameStop's $9.9 billion, indicating market attention on the acquisition dynamics.
- Analyst Insights: Wedbush Securities analysts suggest that while eBay may successfully resist the current proposal, GameStop's continued stake accumulation provides optionality for a proxy fight, potentially pressuring eBay to accelerate capital returns or operational improvements to defend its valuation.
See More
GameStop Increases Stake in eBay to 6.55%
- Increased Stake: GameStop disclosed in a filing that it has raised its stake in eBay to approximately 6.55%, up from around 5%, indicating confidence in eBay's future and strategic positioning.
- Rejected Acquisition Proposal: eBay rejected GameStop's $56 billion takeover bid due to concerns over financing, highlighting its focus on turnaround efforts and improving growth, which may impact GameStop's acquisition strategy.
- Management Engagement: GameStop CEO Ryan Cohen suggested that if eBay fails to engage positively with the acquisition proposal, he may push for a special shareholder meeting to seek board representation more aligned with his proposal, thereby increasing his influence at eBay.
- Shareholder Interests: Cohen emphasized in an interview that eBay's board has a responsibility to act in the best interests of shareholders, indicating that GameStop will take necessary actions to ensure its proposal is adequately considered, potentially raising market interest in eBay's governance structure.
See More
GameStop Expands Economic Exposure to eBay via Derivatives
- Increased Economic Exposure: GameStop has raised its economic exposure to eBay from approximately 22.2 million shares to 29.1 million shares, now holding about 6.55% of eBay's outstanding shares, reflecting increased confidence in its investment strategy.
- Options Structure Details: The investment is structured through derivative-linked put/call options with strike prices ranging from $84.74 to $114.96, potentially providing GameStop with greater market flexibility and profit opportunities.
- CEO's Activist Strategy: GameStop CEO Ryan Cohen's activist campaign against eBay has garnered significant market attention, as he criticizes eBay's cost structure and identifies substantial cost-cutting opportunities, which could lead to strategic changes if he gains control.
- Market Performance Comparison: Year-to-date, GameStop's stock has risen by 10%, while eBay's has increased by 31%, indicating differing market expectations for the future of both companies, with GameStop's expansion strategy potentially influencing its stock performance.
See More
GameStop's Renewed Pursuit of eBay Amid Cost-Cutting Proposals
- Derivative Strategy: GameStop's recent SEC filing reveals an increased economic exposure to eBay of approximately 6.55%, with direct ownership of 25,000 shares and over 29 million additional shares through options, indicating a sustained investment interest in eBay.
- Acquisition Proposal Rejected: Despite GameStop's $56 billion acquisition proposal, eBay has rejected it, stating that the offer is “neither credible nor attractive,” presenting significant hurdles for GameStop's acquisition ambitions.
- Cost-Cutting Plan: CEO Ryan Cohen has proposed nearly $2 billion in annual cost reductions aimed at enhancing eBay's profitability by cutting advertising, administrative, and product development expenses, although analysts express concerns about GameStop's ability to secure $20 billion in financing for the deal.
- Market Sentiment Analysis: While GameStop's stock has gained 10% this year, eBay's shares have surged over 31%, and retail sentiment on Stocktwits remains bearish towards GameStop, reflecting cautious investor attitudes towards its acquisition strategy.
See More
GameStop's Bid for eBay Faces Credit Rating Challenges
- Significant Debt Risk: Moody's analysis indicates that GameStop's acquisition of eBay could result in total debt soaring to approximately $31.4 billion, representing an over 400% increase relative to eBay's standalone capital structure, which significantly raises the company's financial risk and impacts its credit rating.
- Interest Expense Pressure: The annualized incremental interest expense associated with the new debt is estimated to exceed $1 billion, assuming interest rates are higher than eBay's current weighted average cost of borrowing (around 5%-6%), further constraining the company's cash flow.
- Cash Flow Constraints: eBay is projected to generate approximately $900 million in free cash flow in 2025, while GameStop is expected to report around $600 million, and considering the cash costs to achieve targeted cost savings, the pro forma free cash flow will be significantly constrained, impacting operational flexibility.
- Synergy Targets: GameStop aims to achieve approximately $2 billion in annualized synergies within 12 months post-close, with 60% from sales and marketing, 25% from general and administrative, and 15% from product development, which, if fully realized, could help alleviate the debt burden.
See More
Prediction Markets Surge as Retail Investors' New Favorite
- Surge in Participation: Since the 2024 presidential election, monthly notional volume for prediction markets has skyrocketed to over $24 billion, up from less than $5 billion a year ago, indicating strong interest from retail investors in this emerging market.
- Enhanced Competitiveness: The trading volume of prediction markets is now close to that of leveraged exchange-traded products, although it still falls short of the S&P 500's 0DTE options market, which saw nearly $57 trillion in total value traded in March, highlighting the potential of prediction markets in high-risk investment sectors.
- Driven by Younger Investors: A Northwestern Mutual study found that nearly a third of Gen Z and almost a quarter of millennials are currently engaging in prediction markets or sports betting, suggesting that this market is attracting younger investors and may serve as a bridge to equity trading.
- Diverse Trading Opportunities: Prediction markets are considered more approachable due to their binary outcomes and broad range of events to trade, with KKM Financial's Jeff Kilburg noting that this diversity encourages retail investors to participate, further fueling market growth.
See More
