GameStop considers EBay partnership instead of takeover
GameStop is considering withdrawing its $56 billion offer for eBay and shifting toward a partnership or joint venture instead. The move would mark a major change in strategy after the economics of the original takeover proposal weakened over the past several months.
Highlights
- GameStop may abandon its $56 billion offer for eBay.
- A partnership or joint venture is being considered instead.
- GameStop owns 9.75% of eBay.
A possible alternative would allow eBay to make use of GameStop's roughly 1,600 U.S. retail locations while both companies expand in higher-margin categories such as trading cards and collectibles. GameStop would also seek representation on eBay's board under such an arrangement, according to Bloomberg.
Falling GameStop shares weaken the bid
The original proposal, announced in May, valued eBay at $125 a share and was structured as 50% cash and 50% GameStop stock. Since then, GameStop shares have fallen about 28%, while eBay has gained 7.6%, reducing the value of the stock component and making the deal harder to justify.
eBay closed Friday at $111.98, giving the company a market value of roughly $49.8 billion and an enterprise value near $54 billion, including debt. GameStop, by contrast, has a market capitalization of about $8.6 billion, although it holds around $8.4 billion in cash.
GameStop has also increased its influence at eBay. As of July 15, it owned 9.75% of the company, making it the second-largest shareholder behind Vanguard funds.
Partnership could cut financing pressure
A partnership would reduce the need for a heavily financed takeover while still giving GameStop access to eBay's large e-commerce network. eBay processes about $80 billion in annual consumer spending and had roughly 136 million buyers worldwide in the 12 months through March 31.
The strategic fit is clearest in collectibles. GameStop's physical store network could provide an offline channel for categories that already have strong demand on eBay's platform, including trading cards and other high-margin products.
The alternative structure would also address concerns over the debt burden attached to a full acquisition. Those concerns became more prominent after the original bid, especially as GameStop's stock price fell and the value of its equity consideration declined.
For investors, the key question is whether GameStop still intends to pursue significant influence at eBay without buying the company outright. Its nearly 10% stake and interest in board representation suggest it could remain an active shareholder even if the takeover offer is withdrawn.
We previously reported that GameStop’s CEO came under criticism over an interview about the proposed eBay takeover.
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