Shares of GameStop fell over 10% on Monday as investors reacted cautiously to the company’s bold proposal to acquire eBay in a deal valued at $55.5 billion.
The decline in GameStop’s stock stood in contrast to gains in eBay shares, reflecting market skepticism over the feasibility of the transaction and the financial engineering required for a company of GameStop’s size to acquire a company that is roughly four times its size.
GameStop, currently valued at roughly $11 billion, is seeking to acquire eBay, which has a market capitalization of about $46 billion, through a mix of 50% cash and 50% stock.
Deal structure and valuation concerns emerge
Analysts have raised concerns about the structure of the proposed deal, particularly the heavy reliance on equity.
Deutsche Bank noted that the inclusion of a significant stock component may be unattractive to eBay shareholders, especially given the relative size and stability of eBay’s business.
“We suspect the mix of equity in the deal would be less appealing to eBay shareholders,” analysts wrote, adding that integration risks and unclear cost synergies could further complicate the proposal.
Baird analyst Colin Sebastian also cast doubt on the likelihood of the deal going through, assigning it a low probability of success.
He estimated that GameStop would need to issue more than 1 billion new shares to finance the acquisition, potentially leaving existing shareholders with only 25% to 30% ownership in the combined entity.
Such dilution could weigh heavily on investor sentiment, particularly as GameStop’s recent gains have been supported in part by retail investor enthusiasm rather than consistent operating performance.
Cohen outlines strategic vision
GameStop Chief Executive Ryan Cohen has defended the proposal, arguing that a combination of the two companies could unlock efficiencies and drive growth.
In interviews, Cohen said eBay has room to improve its operational performance and profitability.
“When a business is not growing users and spending $2.5 billion in sales and marketing, there’s a lot of fat to cut,” he said in an interview with CNBC, adding that eBay could double its earnings in a short period of time.
“If I was running the business it would be making a lot more money,” he says.
Cohen has proposed using GameStop’s network of physical stores as hubs for eBay’s authentication and fulfillment services, particularly in categories such as collectibles, where both companies already have a presence.
He has also indicated a willingness to pursue a proxy fight if eBay’s board rejects the offer, taking the proposal directly to shareholders.
However, the window to nominate director candidates ahead of eBay’s upcoming annual meeting has already closed, potentially limiting near-term options.
Strategic fit questioned by analysts
Despite Cohen’s confidence, analysts remain unconvinced about the strategic rationale behind the deal.
“There is obviously some overlap in segments (and likely audience) across games, toys, and collectibles,” he wrote in a note to clients.
“That said, eBay operates at a far bigger scale with a more diversified business.”
He added that it remains unclear what GameStop could bring to the table that would justify the acquisition from eBay’s perspective.
eBay, for its part, has responded cautiously, saying its board will review the proposal with a focus on shareholder value, including the viability of the stock component and GameStop’s ability to deliver a binding offer.
Growth trajectories diverge
The proposed takeover comes at a time when the two companies are moving in different directions operationally.
eBay has posted stronger growth, with revenue rising 19% in its most recent quarter, supported by investments in artificial intelligence and strategic acquisitions such as Depop.
In contrast, GameStop’s revenue declined 14% over the same period, highlighting the challenges it faces in its core retail business.
Some analysts suggest that GameStop may be betting on market sentiment to support the deal, with Sebastian noting that the combined entity could trade at a “meme multiple,” driven by retail investor enthusiasm rather than underlying fundamentals.
For now, the market appears unconvinced.
While the proposal underscores GameStop’s ambitions to reinvent itself, investors are likely to demand clearer evidence that such a transformative deal can deliver sustainable value without significant financial risk.
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