GameStop's big bet

Film studios may soon consider optioning a new GameStop movie. Call it Dumb Money 2: It Just Got Dumber.

GameStop is worth about $12 billion, but wants to acquire eBay—worth $48 billion—in a deal for $125 per share. That mismatch raises the obvious: How would GameStop pay for a company four times its size?

That’s exactly what the talking heads on CNBC wanted to know when they interviewed GameStop CEO Ryan Cohen this morning. Instead they got Cohen in a leather jacket at 8am providing awkward responses, long pauses, and tense replies over basic funding math that mostly boiled down to, “We will see what happens.”

Shares of GameStop had fallen 2.94% before the interview began. They ended the day down 10.14%, while eBay shares rose 5.05% to $109.33—well below the implied offer value, typically a sign investors aren’t fully convinced the deal will go through.

The plan

Despite Cohen’s non-answers, there are a few details of the potential deal that we know so far. GameStop has quietly built a 5% stake in eBay since early February, and it would pay for the deal in both stock and cash, backed by about $9 billion already on GameStop’s balance sheet and a reported $20 billion financing commitment from TD Bank.

GameStop is pitching the deal as a turnaround story. It plans to cut $2 billion in eBay’s annual costs within a year of the deal’s completion, largely targeting the online marketplace’s $2.4 billion sales and marketing spend, which GameStop says has failed to drive meaningful user growth. On top of that, it’s positioning its 1,600 US stores as physical infrastructure for eBay, according to the press release.

But while the two companies overlap in categories like gaming, collectibles, and toys, eBay is significantly larger and more diversified. It’s not immediately clear what GameStop brings that meaningfully enhances eBay’s core marketplace beyond financial engineering and cost-cutting, though Cohen seems confident he can turn the combined company into a “legit competitor to Amazon.”

Buyer beware

The disastrous CNBC interview spotlit Cohen’s financial incentives behind such a deal. His revamped compensation package could deliver up to $35 billion in stock-option awards if GameStop hits a $100 billion valuation, among other performance targets, raising questions about whether the deal creates shareholder value, or is simply an attempt to create a massive payday for the CEO.

It’s also worth noting that Cohen told CNBC his company could potentially issue stock “in order to get the deal done,” which would dilute the value of investors’ current holdings.

A sign of the times

This isn’t the first time that a company has tried to bite off more than it can chew. Just weeks ago, Paramount Skydance won the bidding war for Warner Bros. Discovery—a reminder that, in the right environment, scale alone isn’t a barrier.

But the return of these types of deals starts to feel like almost anything can be financed, as long as you’re comfortable dealing with the debt later. That doesn’t necessarily make the deals wrong, but it does suggest a market where ambition is being underwritten a bit more loosely, and where the line between bold and stretched is starting to blur.

For now, we’ll just have to “see what happens.”—SY