CEO gets paid "only if GameStop achieves a market capitalization of $20 billion." Buying a $55bn company would certainly achieve that quickly. I'm not sure how they'd manage that (buy with what? Memes?), other than the should-be-illegal process of putting debt on the acquired company's balance sheet.
Market cap will price in the debt, as it always does. Empirical evidence (dig through Google scholar) finds that cash assets, debt, profits, settlements, and the like, all are reflected in market cap changes at over 99% accuracy (the 1% is from measurement noise, so it may well be 100%).
Making debt of that form illegal would kill any company that needed money to stay afloat, such as during some emergency, or war, or COVID, or tons of events that companies regularly survive.
There is precedent for this kind of trickery being played.
For example, Honeywell acquired Garrett AiResearch, a well known manufacturer of turbochargers for combustion engines, through a series of mergers.
Later on, it loaded them up with debt (over $1.5 billion, mostly asbestos related indemnity obligations from other parts of the business), before spinning them out as an independent entity again. Two years later, Garrett filed for bankruptcy claiming it was succumbing to the unsustainable debt burden placed upon it by its former owner.
Well, his argument is that he can remove inefficiencies in the combined company.
GME is ~12B, EBAY is ~46B (58 total) with net income of 0.4B and 2B (2.4 total). If he boosts profit by 1.2B then it's nearly a 50% increase and probably going to result in a more valuable combined company despite the debt.
Cohen is already rich rich, his GameStop compensation doesn’t really matter much. The eBay acquisition could be a strategy to juice his compensation but I think it is much more likely he does believe that he can achieve his stated aims, which will financially benefit him much more in the long term.
GameStop doesn't have (even close to) $55.5B. Their offer from the letter is literally impossible:
> Our offer is $125.00 per share, comprising 50% cash and 50% GameStop common stock
Even if you magically included all existing GameStop stock in the offer, it still would not comprise 50% of $55.5B.
EDIT: looks like it's not impossible and I misunderstood. It's a proposed change of leadership with a $25B injection of cash to sweeten the deal. GameStop would issue shares which would capture the original eBay value (since GameStop would own eBay after the trade), making that part a wash. At least assuming people owning eBay stock currently would value the combined company at at least the sum of their parts, which is a big if.
When the merger concludes, GameStop-eBay will issue the former shareholders of eBay $27.5bn of GameStop-eBay stock, and $27.5bn of cash. (“Cohen said GameStop has a commitment letter from TD Bank to provide up to $20 billion in debt financing” and “GameStop has around $9 billion in cash on its balance sheet to put toward a deal” [1].)
That's just for the cash part. The stock part makes no sense. For this 50/50 deal to work in principle, they'd need to issue around a billion new shares, which would massively dilute the existing ~450M shares. So Ebay shareholders would suddenly own 70% of Gamestop after the deal. It's also highly questionable if investors actually believe the combined stock is worth that much, so the stock price would probably fall and turn those 70% into >90%. At this point it basically becomes a reverse acquisition plus a large loan for the final company from the cash part of the deal.
How is a 20bn company going to issue 27bn worth of stock? Or are they just going to pretend the newly issued shares are valued the same per share as existing stock is right now?
Yes, that goes into the '50% cash' part of the offer. With a 20B credit line and 7.5B cash from their own coffers (which they claim to have, so let's believe them on their word there), you cover the cash portion.
The issue is the non-cash portion of the offer. They claim that the remaining 27.5B is covered by GameStop stock. But that's more than double the market cap of GameStop.
A lot of the comments here seem to assume that a smaller public company can’t acquire a larger one, which just isn’t true.
A quick search for how leveraged acquisitions, stock-for-stock deals, financing commitments, or tender offers work would answer most of the objections.
Is it too much to ask the Hacker News commentariat to do one quick search before collectively declaring that something they don’t understand is impossible?
> A quick search for how leveraged acquisitions, stock-for-stock deals, financing commitments, or tender offers work would answer most of the objections.
Isn’t the assumption that it’s impossible intuitively justified if you have no background in finances? A small fish usually can’t devour a bigger fish either.
Also, all those terms you mentioned mean nothing to me. You can’t search for what you don’t know exists.
Is there anywhere a good breakdown of these leveraged acquisitions. Like a video or something that breaks down how that exactly works and why its legal and why the acquired company goes along with it. Its seems like such a strange mechanism. And the history of it.
Speaking as someone who used to know absolutely nothing about the world of high finance, yes, it is too much to ask.
Before I started paying attention to such things I wouldn't have known a single one of those terms to even begin googling.
And let's be honest here. A smaller company saddled with big debt buying out an even larger company really doesn't make logical sense. It makes financial sense, which is subject to different laws of mathematics, probably involving the waiter's check pad in an Italian bistro.
If I understand correctly, I think the collectibles market is more in line with what GameStop is looking at here. They recently got into the trading card game including grading services via PSA.
I was seeing the news about this calling it GameStop eBay takeover and I assumed it was eBay buying GameStop and I was like, huh that doesn't really make sense for eBay to buy GameStop but maybe they want the physical locations?
How the hell can GameStop buy eBay, this is insane.
The other way around made more sense to me as well. I don't see this going well for eBay, but I also don't entirely know how well their business is doing.
Here local eBay "clones" aren't in a good place and have been left as ghost towns after Facebook Marketplace.
If they can do some accounting trickery to pull this off then they deserve it. Makes zero sense to me but I did not think GameStop had even close to that in assets.
It's the leveraged buyout playbook. You buy a company and use its own assets to secure a loan. Then you "find efficiencies" (strip it for parts to pay yourself and the creditors).
The Gamestop CEO is an interesting character, he grew Chewy and sold it, did a massive play on Apple stock during the pandemic and used that to buy a 9% stake in Gamestop over time, rode the hype to accumulate $9B while turning the company around and closing stores that weren't profitable and making it a money making budiness again. And now they already own 5% of eBay on top.
Along the way he says some ridiculous Trump stuff and wasted a bunch of time on NFTs but the eBay play seems interesting at least. It's one of the best internet soap operas to follow. For comparison AMC was put in the same "meme stock" bag at the time and you can see how they managed to ride the hype. So it's not just memes.
Important background: https://investor.gamestop.com/news-releases/news-details/202...
CEO gets paid "only if GameStop achieves a market capitalization of $20 billion." Buying a $55bn company would certainly achieve that quickly. I'm not sure how they'd manage that (buy with what? Memes?), other than the should-be-illegal process of putting debt on the acquired company's balance sheet.
Market cap will price in the debt, as it always does. Empirical evidence (dig through Google scholar) finds that cash assets, debt, profits, settlements, and the like, all are reflected in market cap changes at over 99% accuracy (the 1% is from measurement noise, so it may well be 100%).
Making debt of that form illegal would kill any company that needed money to stay afloat, such as during some emergency, or war, or COVID, or tons of events that companies regularly survive.
Wouldn’t that debt knock down the market cap as much as the value
Otherwise take out a $20b loan and put it in the bank. Assets increase $20b, job done.
There is precedent for this kind of trickery being played.
For example, Honeywell acquired Garrett AiResearch, a well known manufacturer of turbochargers for combustion engines, through a series of mergers.
Later on, it loaded them up with debt (over $1.5 billion, mostly asbestos related indemnity obligations from other parts of the business), before spinning them out as an independent entity again. Two years later, Garrett filed for bankruptcy claiming it was succumbing to the unsustainable debt burden placed upon it by its former owner.
Well, his argument is that he can remove inefficiencies in the combined company.
GME is ~12B, EBAY is ~46B (58 total) with net income of 0.4B and 2B (2.4 total). If he boosts profit by 1.2B then it's nearly a 50% increase and probably going to result in a more valuable combined company despite the debt.
10 replies →
Cohen is already rich rich, his GameStop compensation doesn’t really matter much. The eBay acquisition could be a strategy to juice his compensation but I think it is much more likely he does believe that he can achieve his stated aims, which will financially benefit him much more in the long term.
GameStop doesn't have (even close to) $55.5B. Their offer from the letter is literally impossible:
> Our offer is $125.00 per share, comprising 50% cash and 50% GameStop common stock
Even if you magically included all existing GameStop stock in the offer, it still would not comprise 50% of $55.5B.
EDIT: looks like it's not impossible and I misunderstood. It's a proposed change of leadership with a $25B injection of cash to sweeten the deal. GameStop would issue shares which would capture the original eBay value (since GameStop would own eBay after the trade), making that part a wash. At least assuming people owning eBay stock currently would value the combined company at at least the sum of their parts, which is a big if.
> GameStop doesn't have (even close to) $55.5B
When the merger concludes, GameStop-eBay will issue the former shareholders of eBay $27.5bn of GameStop-eBay stock, and $27.5bn of cash. (“Cohen said GameStop has a commitment letter from TD Bank to provide up to $20 billion in debt financing” and “GameStop has around $9 billion in cash on its balance sheet to put toward a deal” [1].)
[1] https://www.wsj.com/business/deals/gamestop-is-offering-to-b...
I don’t understand why eBay shareholders will suddenly want GME memestock and find any interest in voting for this.
they will be getting 20% more than what Ebay is worth today
1 reply →
I don’t understand either but wouldn’t they still be owning eBay? Just with GME?
3 replies →
Isn’t that just a https://en.wikipedia.org/wiki/Leveraged_buyout ?
That's just for the cash part. The stock part makes no sense. For this 50/50 deal to work in principle, they'd need to issue around a billion new shares, which would massively dilute the existing ~450M shares. So Ebay shareholders would suddenly own 70% of Gamestop after the deal. It's also highly questionable if investors actually believe the combined stock is worth that much, so the stock price would probably fall and turn those 70% into >90%. At this point it basically becomes a reverse acquisition plus a large loan for the final company from the cash part of the deal.
The stock part is more like a merger than a buyout.
Yup.
It's newly issued stock, a common form of making acquisitions cheaper
How is a 20bn company going to issue 27bn worth of stock? Or are they just going to pretend the newly issued shares are valued the same per share as existing stock is right now?
2 replies →
man, those GME bagholders are gonna love diluted shares.`
They already increased total number of stock by +39% in last 12 months, GME will squeeze the last penny from those people.
2 replies →
Have your ever heard of debt? They have a 20B line secured from TD.
Yes, that goes into the '50% cash' part of the offer. With a 20B credit line and 7.5B cash from their own coffers (which they claim to have, so let's believe them on their word there), you cover the cash portion.
The issue is the non-cash portion of the offer. They claim that the remaining 27.5B is covered by GameStop stock. But that's more than double the market cap of GameStop.
8 replies →
I believe ebay should put itself up for sale on ebay instead.
A lot of the comments here seem to assume that a smaller public company can’t acquire a larger one, which just isn’t true.
A quick search for how leveraged acquisitions, stock-for-stock deals, financing commitments, or tender offers work would answer most of the objections.
Is it too much to ask the Hacker News commentariat to do one quick search before collectively declaring that something they don’t understand is impossible?
There’s one comment as of the time of your post that makes this assumption - you could have replied to them directly.
It is implicitly implied in many comments.
6 replies →
> A quick search for how leveraged acquisitions, stock-for-stock deals, financing commitments, or tender offers work would answer most of the objections.
Isn’t the assumption that it’s impossible intuitively justified if you have no background in finances? A small fish usually can’t devour a bigger fish either.
Also, all those terms you mentioned mean nothing to me. You can’t search for what you don’t know exists.
I see a single comment mentioning it is impossible. No sign of a collective declaration. I think you’re overreacting
I think you are under reacting.
But if it all goes sour nobody will be held accountable and two not one company are ruined.
I don't see how such leveraged acquisitions should be legal.
Is there anywhere a good breakdown of these leveraged acquisitions. Like a video or something that breaks down how that exactly works and why its legal and why the acquired company goes along with it. Its seems like such a strange mechanism. And the history of it.
Example from quite some time ago: Avast buying AVG. The value of AVG was around twice that of Avast.
AOL/TimeWarner, Kmart/Sears… lots of prominent examples.
Speaking as someone who used to know absolutely nothing about the world of high finance, yes, it is too much to ask.
Before I started paying attention to such things I wouldn't have known a single one of those terms to even begin googling.
And let's be honest here. A smaller company saddled with big debt buying out an even larger company really doesn't make logical sense. It makes financial sense, which is subject to different laws of mathematics, probably involving the waiter's check pad in an Italian bistro.
> Is it too much to ask the Hacker News commentariat to do one quick search
Are you new here?
Very specific corners of the internet are losing their minds right now.
A low tide leaves very few boats afloat, but these are lighter-than-air craft.
This very specific corner of the internet has no idea how your metaphor is supposed to work, which is why I like it so much.
Not a headline I ever thought I would see. Kinda crazy how meme stocks and retail hype has led to this.
Previous discussion: "GameStop Preparing Offer for eBay" https://news.ycombinator.com/item?id=47985271 68 comments
Are there still large shorts on GameStop? If this goes through I assume it will wipe those out?
With the state ebay is in, I'd welcome anyone else to run it
Every day our world is becoming just that tiny little bit more stupid
I guess if people use eBay a lot to sell used games then there is something of an overlap there. Otherwise, it seems pretty weird.
That sneaker company that pivoted to data centers set the 'weird' bar pretty high.
GameStop has physical stores so could be a place to send, collect from or even verify high value eBay items.
Based on my own experience with GameStop, that will convince me to stop using eBay completely.
EBay is running a platform (very successfully) not a pawnshop.
If I understand correctly, I think the collectibles market is more in line with what GameStop is looking at here. They recently got into the trading card game including grading services via PSA.
Is that market really that large? That sounds very niche, but I don’t know the collectible world
So they want to pay half of that with a meme stock?
I was seeing the news about this calling it GameStop eBay takeover and I assumed it was eBay buying GameStop and I was like, huh that doesn't really make sense for eBay to buy GameStop but maybe they want the physical locations?
How the hell can GameStop buy eBay, this is insane.
The other way around made more sense to me as well. I don't see this going well for eBay, but I also don't entirely know how well their business is doing.
Here local eBay "clones" aren't in a good place and have been left as ghost towns after Facebook Marketplace.
If they can do some accounting trickery to pull this off then they deserve it. Makes zero sense to me but I did not think GameStop had even close to that in assets.
It's the leveraged buyout playbook. You buy a company and use its own assets to secure a loan. Then you "find efficiencies" (strip it for parts to pay yourself and the creditors).
"I like the stock" - GameStop
From storytelling to investor POV, does it a good story to frame this as entering the AI era through a digital service that everyone familiar with?
i don't understand why ebay looks SO terrible. It seems like some broken website where css failed to load.
is this for real? Or just to get gamestonks back into the news for another whirl on the wheel of meme?
Reminds me of Sierra On-Line being acquired by CUCk International in 1996.
ebay is still "old internet", and genuinely useful and well built. enshittification is incoming...
For an old internet company they sure know how to enshittify global selling with their Global Shipping Program also know as Global Shitting Program.
The Gamestop CEO is an interesting character, he grew Chewy and sold it, did a massive play on Apple stock during the pandemic and used that to buy a 9% stake in Gamestop over time, rode the hype to accumulate $9B while turning the company around and closing stores that weren't profitable and making it a money making budiness again. And now they already own 5% of eBay on top.
Along the way he says some ridiculous Trump stuff and wasted a bunch of time on NFTs but the eBay play seems interesting at least. It's one of the best internet soap operas to follow. For comparison AMC was put in the same "meme stock" bag at the time and you can see how they managed to ride the hype. So it's not just memes.
I look forward to today's Money Stuff!
He's a meme trader manipulating retailer investors, following Elon's footsteps
I mean he pumped and dumped BBB, and those people (or should we call them apes?) still love this guy.
those guys have a very strong track record of getting their way lately
[dead]
[dead]