GameStop, the video game retailer that became a household name during the meme stock frenzy of 2021, has seen its credibility questioned after a $55.5bn (£41bn) takeover bid for eBay was rejected as 'neither credible nor attractive'. The offer, which came as UK 10-year gilt yields climbed above 5%, has provided a curious distraction from more serious market movements.
The Rise of GameStop
GameStop first gained notoriety when amateur traders on a Reddit forum coordinated a massive buying spree to squeeze short-sellers betting against the struggling retailer. The campaign succeeded beyond expectations, driving the share price up a hundredfold and causing significant losses for hedge funds. Ryan Cohen, the company's chief executive, emerged as an anti-establishment hero.
The Bid for eBay
Despite improved trading numbers, GameStop was valued at just $11bn at the start of the month when Cohen proposed buying eBay, a company four times its size, at $125 per share. The offer was to be funded half in cash and half through the issuance of new GameStop shares. However, eBay's board swiftly dismissed the proposal, citing a lack of credibility.
Of the advertised $28bn cash component, $20bn relies on a non-binding expression of confidence from TD Bank, contingent on GameStop obtaining an investment grade rating—a prospect far from certain given the leverage required. This, presumably, is what eBay meant by the credibility deficit.
Why eBay Rejected the Offer
eBay's shares have risen 50% over the past year, making it unattractive for shareholders to swap into GameStop stock, a notoriously volatile currency. Even if Cohen's strategy of cutting eBay's marketing budget in half and seeking synergies between eBay's online platform and GameStop's 1,600 stores were viable, it fails to offer a compelling alternative to eBay's current trajectory.
Cohen's Determination
Cohen has stated he will not take no for an answer, hinting at a potential hostile bid. However, GameStop's shares have fallen since the bid was announced, indicating even its loyal investors have doubts. While the meme stock squeeze of 2021 was a remarkable coup, a $56bn reverse takeover bid appears far less tenable.
