Featured Image Credit: Cheng Xin / Contributor / Getty
It is not often that a company worth around $10 billion attempts to swallow one worth nearly five times as much.
But that is exactly what GameStop CEO Ryan Cohen attempted earlier this month when he unveiled an audacious $55.5 billion offer to acquire eBay.
The CEO publicly offered to buy the e-commerce giant at $125 per share in a cash-and-stock deal and intended to make eBay more successful than its rival Amazon.
In his pitch, he argued that eBay was underperforming relative to its spending, promised $2 billion in annualised cost reductions within 12 months of any deal closing and suggested that GameStop's 1,600 US retail locations could give eBay a 'national network for authentication, intake, fulfilment, and live commerce.'
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He also took aim at eBay's current leadership, arguing that CEO Jamie Iannone had allowed marketing spend to balloon without delivering user growth.
"GameStop staff already inspect and grade hardware and trading cards every day," GameStop said when it announced the offer. "Sellers walk in, items are verified on the spot, and listings carry a trust badge."
Cohen added that he was prepared to take the offer directly to shareholders if eBay declined.
However, eBay's board didn't take long to reject the deal.
In a letter from chairman Paul Pressler, the company delivered a blunt verdict: “We have concluded that your proposal is neither credible nor attractive.”
In the letter, eBay questioned the 'uncertainty' of GameStop's financing and noted the potential debt burden the combined company would face if the deal went through.
Cohen had indicated that GameStop had secured a $20 billion financing commitment from TD Securities and had around $9 billion in cash on hand. But this still leaves a substantial gap given the scale of the offer.
“We are offering half cash, half stock, and we have the ability to issue stock in order to get the deal done,” Cohen said. “But the full details of the offer are on our website. We’ll see what happens.”
With shares up 24% year to date, eBay is confident it has 'delivered meaningful results' over the past several years.
“We have sharpened our strategic focus, strengthened execution, enhanced our marketplace and seller experience, and consistently returned capital to shareholders,” eBay noted.
Under the leadership of Iannone, eBay has focused on high-value categories such as trading cards, collectables and luxury goods to stand out from its rivals.
Analysts at Gordon Haskett had already described the bid as a 'lopsided marriage proposal' before eBay formally responded, suggesting the chances of acceptance were slim from the outset.
“The ball is now in Cohen’s court and he must decide whether he is going to put this offer directly in front of shareholders,” the analysts wrote (as shared by CNBC).
