EBay turns down GameStop takeover offer worth $56 billion

Traders Union
All News
Financial News
GameStop offered $56B for eBay

Highlights

GameStop offered to buy eBay for $56 billion, including $28 billion in cash and $28 billion in stock.
eBay rejected the proposal because of financing risks and high debt.
The deal required raising $20 billion in debt while preserving an investment-grade rating.
Moody’s warned of a negative impact on creditworthiness.
Ryan Cohen may try to appeal directly to eBay shareholders.

The proposal and eBay’s response

GameStop, whose market capitalization at the time of the announcement was about $12 billion, offered to pay eBay shareholders, whose company was valued at $46 billion, $28 billion in cash and give them a controlling stake in the combined company, valued at another $28 billion. As a result, eBay shareholders could have received a premium of nearly $10 billion, Bloomberg reported.

The cash portion of the deal was expected to be financed by raising $20 billion in debt with support from TD Securities. However, eBay questioned whether the plan was realistic, especially when it came to securing an investment-grade credit rating for the combined company. eBay’s board published a letter from the lender emphasizing that the financing depended on receiving a high rating.

Financial risks and Moody’s assessment

Moody’s analysts expressed serious concerns. According to their estimates, the gross debt of the new company could have been nine times higher than its earnings. Even after accounting for cash and projected annual cost savings of $2 billion, the net debt-to-EBITDA ratio would remain elevated at about 4.2 to 6.3 times.

GameStop CEO Ryan Cohen, known for unconventional approaches, believes that synergies and strict cost cuts could make the deal worthwhile. However, rating agencies and the market remain highly cautious about that level of leverage. eBay shares continued to trade near record highs after the rejection, while GameStop still needs to prove that its strategy is viable.

Ambition versus realism in corporate finance

This story shows how difficult large deals have become in an environment of high interest rates and strict rating agency requirements. Even with a creative structure and promised synergies, investors and lenders demand solid guarantees.

For GameStop, the proposal was a way to signal a new growth strategy beyond retail. For eBay, it was a chance to remind the market of its strong position. For now, the plan looks extremely ambitious and unlikely without major revisions. But in the corporate world, it is sometimes exactly these “impossible” ideas that eventually change the rules of the game.

We previously reported that GameStop’s CEO came under criticism over an interview about the proposed eBay takeover.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.