Comment by orlp
5 hours ago
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, the former shareholders of eBay will have $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
Once. Followed by a tank in price and descent into chaos.
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I don’t understand either but wouldn’t they still be owning eBay? Just with GME?
They own eBay + GME + some financial alchemy. If you aren't a financial wizard you should assume that the value of the financial alchemy is negative. (Because 99% of the time it is.) Now, what are the synergies of eBay + GME that outweighs the chaos caused by the merger and the finance stuff?
I’m not totally sure how it would be structured but if GME is the purchaser then the merged company would be listed under GME and eBay would become a brand in the GME group and no longer a stock listed under the eBay ticker.
The whole thing seems incredibly dubious and fishy. The eBay board should vote this down which is why the CEO of GME has already realised that and said he’ll appeal to the shareholders directly. If eBay wanted to load themselves with twenty billion dollars of unnecessary debt and extra complications which would kill the company then they could do it themselves. They’re not in that kind of business.
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Isn’t that just a https://en.wikipedia.org/wiki/Leveraged_buyout ?
Yes. See [1] for an overview of how this works.
When the SEC filing is made, we'll get to see how the deal is structured. The $20 billion from TD Securities becomes a debt obligation of the combined company. There's a tax break in equity to debt conversion, and a second tax break for carried interest. [2] There may be a preferred stock deal or debt refinancing so that TD gets their $20 billion back. Usually, the private equity firm exits within a few years.
[1] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121
[2] https://www.pgpf.org/article/what-is-the-carried-interest-lo...
No, it's not a 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.
This is not atypical; smaller company “buys” the larger company with debt on the larger company’s books. The blended shareholder mix is mostly the larger company; management comes from the smaller company.
The one I was most familiar with was the Discovery “acquisition” of Warner Brothers. Though apparently that’s a little complicated because AT&T was divesting itself of Warner.
No, unless any control transaction using any leverage counts.
A third of the deal is financed with debt. A fifth is financed with cash. The bulk—fifty percent—is being financed with equity. An LBO would see debt and a thin tranche of cash finance the bulk of the acquisition.
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?
Because it acquires an asset worth roughly that much, it’s neutral. GME is (probably!) not doing a huge at-the-market offering, they’re creating the shares and immediately giving them to eBay shareholders.
In practice the price paid for the company being acquired is usually a bit higher than the market value (so the shareholders take the deal), and the market usually punishes the acquirer a bit and the resulting entity’s stock will fall a bit. (This is most definitely not investing advice.)
the stock they'd be issuing would be for (GameSpot + eBay) whereas the current stock is for GameSpot alone
via a cunning pump on Wall Street Bets
why do i keep seeing comments of this sentiment? can't they just take loans? I thought there were serious consequences to making an offer, and then backing out , especially if the other party accepts your offer.
man, those GME bagholders are gonna love diluted shares.`
Perhaps that is part of the scam here. Meme stock buyers will think this means something and will spend more on worthless shares so that ebay executives can sell.
They already increased total number of stock by +39% in last 12 months, GME will squeeze the last penny from those people.
… and the stock has not dropped 39%, in fact it’s trading about where it was a year ago. Shareholders have been content to let Cohen add to the balance sheet, adjust operations and make a large move. This is one such move. And GME is up 5+% in pre trading, so shareholders are generally positive about this idea.
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They can sell now and pocket some extra money. What's not to like?
If bagholders were capable of buying low and selling high, they wouldn't be bagholders.
you think all the bagholders are in at the current price?
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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.
With the approval of the board of directors (in most cases), a company can simply create new shares and give them to whomever they like.
I would guess that this information will bother you.
If it helps, because many public company executives are compensated on earnings per share, most C level teams are incentivized to buy back shares, thus decreasing the denominator for the EPS calculation without changing fundamental economics of the company.
If this also bothers you, you should guess what Buffet says and thinks about those two dynamics, and then read up on it, and you will learn something interesting about public markets!
I’m sure if eBay wanted to build 1800 brick and mortar stores they could do so for less than twenty seven billion dollars.
Are they under any obligation to ground the value of their own stock or can a salesman simply claim that the "true" value of that stock is much much more than it currently seems to be?
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You understand that the gamestop stock would then be owning ebay, thus be worth Ebay + Gamestops Valuation?
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