Key Takeaways:
GameStop Corp. is preparing an acquisition offer for eBay Inc., a move to accelerate CEO Ryan Cohen’s ambitious plan to grow the video-game retailer’s market value more than tenfold to over $100 billion.
The Wall Street Journal first reported the potential deal, citing people familiar with the matter.
EBay, with a market capitalization of about $46 billion, saw its shares jump over 10% in after-hours trading. GameStop, valued at nearly $12 billion, gained about 5%. GameStop has reportedly been building a stake in eBay ahead of the offer, which could be submitted this month.
This potential "snake swallowing an elephant" acquisition presents both immense opportunity and significant risk. For GameStop, a successful acquisition would transform it into a major e-commerce player, diversifying it away from its struggling brick-and-mortar video game business. However, financing such a large deal and integrating the two companies would be a monumental challenge.
The potential acquisition is the latest and most audacious move in Ryan Cohen's push to revitalize GameStop. The Chewy co-founder, who became a billionaire through his successful online pet supply business, took a large stake in GameStop in 2020 and became chairman in 2021. He has since been working to pivot the company towards e-commerce and digital gaming.
In January, GameStop unveiled a new compensation package for Cohen that would award him with shares worth up to $35 billion if he can increase the company's market capitalization to $100 billion and hit $10 billion in cumulative performance EBITDA. This ambitious target helps explain the move for a company of eBay's scale.
The plan has found support from some prominent investors, including Michael Burry, the investor made famous by "The Big Short," who has argued that GameStop should use its large cash pile for a transformative acquisition. As of the end of March, GameStop had about $9 billion in cash, a significant war chest for potential deals.
The market's reaction to the news was immediate and positive for both companies. EBay's stock surge reflects the potential for a significant premium in any acquisition offer, while the rise in GameStop's shares suggests investor enthusiasm for Cohen's bold strategy.
EBay, a pioneer of e-commerce, has been working to revitalize its own business in recent years. The company has focused on its core marketplace, particularly in areas like collectibles and fashion. In February, it announced the $1.2 billion acquisition of the second-hand fashion marketplace Depop from Etsy.
It remains to be seen how eBay's board and management will respond to a potential offer from GameStop. If eBay is not receptive, Cohen could take the offer directly to shareholders, setting the stage for a potentially hostile takeover battle.
This article is for informational purposes only and does not constitute investment advice.
