• Morgan Stanley said it was not taken by surprise by eBay's rejection of GameStop's $125-per-share buyout bid.
• The firm believes it is quite possible that eBay's board will turn down a sweetened offer from GameStop.
• eBay is rated ‘Overweight’ at the firm with a price target of $121, implying a 12% upside potential.

Morgan Stanley, on Tuesday, was reportedly unsurprised by e-commerce platform operator eBay Inc. (EBAY) labeling GameStop’s (GME) $125-per-share buyout offer as "neither credible nor attractive."

According to TheFly, the firm noted that eBay's board was more concerned about other matters than the price itself and questioned the deal's financing and leverage, as well as the impact on the resulting post-deal valuation.

Morgan Stanley believes eBay's board will likely reject a sweetened offer from GameStop unless the other issues are resolved.

EBAY Rejects GME’s Proposal

Earlier on Tuesday, eBay said it turned down GameStop's offer after evaluating several factors, including its own potential as a standalone entity, the proposed transaction’s impact on long-term growth and overall profitability, and how the struggling videogame retailer would fund the deal.

eBay was also concerned about the corporate governance practices at the Ryan Cohen-led company, as well as the executive incentive framework.

Next Steps For EBAY

Morgan Stanley does not see an end to the eBay-GameStop drama yet. The firm has outlined four potential next steps: a counteroffer, a direct proposal, a failed GameStop proxy vote, or a new bidder, since the idea of buying eBay has been floated.

It has an ‘Overweight’ rating on eBay stock with a price target of $121, implying an upside potential of nearly 12%.

What Does Retail Think About EBAY And GME Stocks?

On Stocktwits, retail sentiment about EBAY remained ‘bullish’ and ‘neutral’ on GME over the last 24 hours.

One user on the platform said the deal would benefit only GameStop CEO Ryan Cohen.

Another user thinks eBay turned down a good deal.

So far this year, EBAY stock has risen nearly 22%, and GME is up over 14%, outperforming the S&P 500.

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