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eBay has rejected a $56 billion takeover proposal from video-game retailer GameStop, describing the offer as “unreliable and unattractive.” The move follows GameStop’s announcement of a cash-and-stock bid to acquire eBay, valuing the target at more than four times GameStop’s own market capitalization.
In a letter to GameStop CEO Ryan Cohen published on May 12, eBay said its Board of Directors had “carefully reviewed the proposal and decided to reject it.”
eBay cited several concerns, including uncertainty about the financial terms needed to execute the deal, leverage and operational risks after a merger, and governance issues at GameStop.
The rejection could prompt GameStop to pursue a hostile takeover. The possibility is heightened by Cohen’s comments from the previous week that he could present the buyout proposal directly to eBay shareholders, according to the Financial Times.
At the time of the bid, GameStop disclosed it held a 5% stake in eBay. The proposal valued eBay at $125 per share, offering half in cash and half in GameStop stock.
The offer represented a premium of about 46% over eBay’s closing price on February 4, the date GameStop began accumulating its stake in eBay.
Following the May 12 decision, eBay shares rose 2.1%, while GameStop shares fell about 3.5%.
GameStop’s acquisition plan was supported by a potential $20 billion loan from Canada’s TD Securities. In a May 12 filing, TD said it was “very confident” it could mobilize the funds if GameStop receives an investment-grade rating from at least two of the world’s three largest rating agencies.
GameStop said it holds about $9 billion in cash and would use this to help fund the acquisition.
In its communication to eBay’s board, Cohen argued that a merger would cut costs and boost profits. He also said the combined company could become a leading ecommerce platform focused on collectibles, games, and enthusiast communities.
The prospect of eBay becoming the target of a GameStop takeover is described as one of the most unusual developments in global mergers and acquisitions in recent years. GameStop had previously become the center of the meme-stock frenzy during the Covid-19 pandemic, when its market capitalization briefly surpassed $200 billion.
In a CNBC interview last week, Cohen said he would “not accept a yes” from eBay, adding, “I’m not going anywhere,” regarding his intention to acquire eBay.
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