GameStop (GME) shook up the e-commerce world on Sunday with an unsolicited offer to buy internet retailer and auction site eBay (EBAY) for roughly $56 billion. However, at least one analyst is skeptical about the video game retailer’s ability to finalize a deal.
GameStop has offered $125 per share in what would be a 50% cash, 50% stock transaction. The deal, which values EBAY at $55.5 billion, represents a 20% premium to last Friday’s close of $104, and a 36% premium to EBAY’s 90-day volume-weighted average price. GameStop currently has about $9 billion in cash and marketable securities; it plans on financing the rest of the cash position through $20 billion in debt, which TD Securities has committed to financing.
GameStop CEO Ryan Cohen, who had already built up a 5% stake through common stock and derivatives, told the Wall Street Journal in an interview that the combined entity “could be a legit competitor to Amazon.”
“GameStop’s ~1,600 US locations give eBay a national network for authentication, intake, fulfillment, and live commerce,” he wrote in a letter to eBay Chair Paul Pressler.
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How Realistic Is a GameStop/eBay Deal?
Both stocks responded moderately to the news: GME stock was down about 5% on Monday morning, while EBAY shares were up by roughly the same amount. It’s possible the response was at least somewhat muted given a number of hurdles in the way.
Here’s what Youssef Squali, Managing Director at Truist, had to say in a Monday morning note:
“We remain skeptical that this proposal will be successful as 1) the 50% cash/50% Gamestop stock may give eBay shareholders some pause, especially the stock portion given the volatility in GME (it fluctuated between $35-$20 in the TTM), 2) eBay’s revenue base is ~3x and its net income is 15x that of GME (using consensus ests), an indication of the more complex nature of running eBay, 3) eBay’s market cap is ~4x that of GME and the proposed $56B offer is 5x GME’s market cap, and importantly 4) there seems to be a lack of meaningful synergies between the two entities in our opinion.
Squali, who doesn’t cover GME and rates EBAY at Hold, added that earnings-per-share improvements would likely come from cost cuts rather than revenue growth and synergies, but said the development was still “worth monitoring.”
BMO Capital Markets, meanwhile, reiterated its Outperform rating (equivalent of Buy) and $130 price target on EBAY’s shares. “We maintain that eBay is a valuable asset, but note that premium assets control premium prices,” they write.
Related: BMO Capital, UBS Raise Targets on Amazon (AMZN)
According to S&P Global Market Intelligence, the majority (21) of analysts covering EBAY call it a Hold, while 10 say it’s a Buy and two believe it’s a Sell. That translates into a consensus Hold rating. Meanwhile, an average price target of $104.67 across eBay’s covering analysts suggests only fractional upside from Friday’s closing price of $104.07.
Not enough analysts currently cover GameStop to create an S&P Global Market Intelligence consensus. The only research firm we communicate with that covers the company is Wedbush, which currently rates GME stock at Underperform (equivalent of Sell).
Quick Stats (EBAY)
- Market cap: $49.0 billion
- Dividend yield: 1.2%
- Forward price-to-earnings (P/E): 17.2
- Price-to-book (P/B): 10.5
Quick Stats (GME)
- Market cap: $11.9 billion
- Dividend yield: N/A
- Forward price-to-earnings (P/E): 28.3
- Price-to-book (P/B): 2.2
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