eBay Rejects GameStop’s Acquisition Proposal — Calls It ‘Neither Credible Nor Attractive’

• eBay expressed concerns related to GameStop’s corporate governance practices and executive incentive framework.
• The company also stated that it examined the operational and financial risks associated with a combined company, particularly the level of leverage involved and the proposed leadership structure.
• These factors were considered in the context of the combined entity’s ability to execute effectively over time, it added.

eBay Inc. (EBAY) on Tuesday rejected GameStop Corp.’s (GME) acquisition proposal, calling it “neither credible nor attractive.”

“The Board, with the support of its independent advisors, has thoroughly reviewed your proposal and has determined to reject it. We have concluded that your proposal is neither credible nor attractive,” eBay stated in a letter addressed to GameStop CEO Ryan Cohen.

The company cited multiple reasons for rejecting GameStop’s acquisition proposal, which offered $125 per share to eBay’s shareholders and valued the deal at $56 billion.

eBay shares were down over 1% in Tuesday’s pre-market trade, while GameStop shares were down more than 4%.

What Did EBAY Evaluate While Reviewing GME’s Proposal?

eBay said it evaluated several factors, including its standalone prospects and uncertainty surrounding GameStop’s proposed financing structure. The company stated that it also assessed how the transaction could affect its long-term growth trajectory and overall profitability.

eBay also stated that it examined the operational and financial risks associated with a combined company, particularly the level of leverage involved and the proposed leadership structure. These factors were considered in the context of the combined entity’s ability to execute effectively over time, it added.

The e-commerce giant also expressed concerns related to GameStop’s corporate governance practices and executive incentive framework.

Cohen’s Proposal For EBAY’s Business

During an interview earlier this month, Cohen said that he intends to bring his entrepreneurial mindset to turn eBay into a much larger business.

He said he intends to use GameStop’s infrastructure and expand its focus on collectibles as part of a strategy to transform eBay into a significantly larger business.

“eBay has the second largest commerce franchise and there is a big opportunity to do something much larger and pull costs out of the system as well as accelerate revenue growth,” Cohen added.

Wall Street Skepticism On GME, EBAY Deal Now Validated

Wall Street remained skeptical about eBay accepting GameStop’s proposal, and that skepticism has now been validated.

According to TheFly, analysts at Stifel stated in a note last week that while the GameStop proposal made strategic sense, they did not see the deal going through for several reasons.

Stifel flagged concerns over the large amount of GameStop stock needed to complete the deal, significant integration risks given GameStop’s smaller size, and the ambitious goal of achieving $2 billion in synergies within 12 months.

Truist analysts echoed similar sentiments, adding that they don’t see the bid succeeding because it requires about $20B in debt financing to bridge the valuation gap.

EBAY stock is up 24% year-to-date, while GME stock is up 15%. The Invesco QQQ Trust (QQQ) is up 46% over the past 12 months, while the Vanguard Total Stock Market Index Fund ETF (VTI) is up 31%.

The Vanguard Small-Cap Index Fund ETF (VB) is up 29% during this period.

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