Video game retailer GameStop is known for a lot of reasons, but perhaps the firm’s biggest claim to fame is the famous short squeeze that sent shares of the video game retailer and similarly situated “meme stocks” soaring. It was a defining story of the 2021 market.
Of course, five years later, GameStop is not what it used to be. That’s for better and worse. While its shares are well above the price they fetched during the pandemic, they are well below the $483 peak level they briefly achieved during the squeeze in January 2021. Five years later, the company still has a noble base of investors — many of whom are holdouts from the pandemic-era boom, still bought into a dream of a comeback.
But some, like former Chewy CEO Ryan Cohen, are in because — to borrow an old saying — “they like the stock.” Cohen, who picked up shares of the beleaguered retailer before the short squeeze, became the company’s largest shareholder before he became its CEO.
He’s presided over what has largely been an emergency operation to stop the bleed of revenue from the largest brick-and-mortar games retailer in the country, exploring new business verticals like crypto, collectibles, and new merchandise. And as CEOs tend to do when trying to salvage their business, he’s exploring possible deals. Only, it’s not really clear whether the most recent deal he is seeking is even possible.
GameStop wants eBay
On Monday, GameStop proposed a $55.5 billion offer for eBay, which CEO Ryan Cohen says will be “half cash, half stock.” That deal would be a 20% premium to eBay’s Friday close, $125 per share.
It has been no secret that eBay has been on the bidding block for a while, but this is probably not what they were expecting to come out of the woodwork. eBay says it’s reviewing the deal, as it should. However, they’re probably going to have a problem when they get to the funding part of the deal.
That’s because GameStop is valued at $11 billion, as in, $45 billion less than eBay.
Related: An in-depth timeline of the GameStop short squeeze saga
GameStop has a bridge to sell them, though. In recent weeks, the company accumulated a 5% stake in the business through “derivatives and beneficial ownership of common stock.” It has $9.4 billion in cash. It also says it has financing, attaching a “highly confident letter” from Canada’s TD Bank for $20 billion of debt financing to the deal.
That piece of paper isn’t legally binding, but it’s a good start …
Only $15.6 billion to go.
It’s unclear how this is possible
With over 28% of the deal’s financing unaccounted for, it isn’t really clear how this deal will get done. The folks on primetime CNBC figured CEO Ryan Cohen would offer some context, but all they got was a bizarre interview that was mum on details instead.
The CNBC correspondents wanted to know where that gap was coming from. To that, Cohen said that, “We are offering half cash, half stock, and we have the ability to issue stock in order to get the deal done, but the full details of the offer are on our website.”
When asked more questions, specifically about the financing gap, Cohen simply said, “We’ll see what happens.”
Is that a threat?
We took a look at GameStop’s website and didn’t find a lot of additional details (something about cost savings, reductions, synergy — lots of business lingo.) Absent the mention of issuing stock, it is not clear where the last portion of the deal money will come from.
In other words, it seems like there are two realistic ways that GameStop could close the nearly $16 billion gap:
- Securing new capital commitments and investors for the deal
- Issuing a lot of stock and hoping that raises enough cash (although this would be massively dilutive to the company’s stock)
Because, realistically, betting on another massive, short squeeze around this deal is not a winning strategy (unfortunately, it isn’t 2021 anymore). In any case, all of these possibilities feel like a Hail Mary at the moment, which will likely be reason enough for eBay to rebuff the offer.
They might not get eBay, but they might win anyway
GameStop says it wants eBay; it probably can’t afford it. They might still win something anyway.
With over 22 million call options on eBay and widespread awareness that the company is on the bidding block, GameStop could be in a position to score from any M&A chatter — real or fake. At least for now, they’re up over $1 billion on their 5% stake in eBay.
Of course, it is a lot of the M&A chatter right now, which begs the question of when or how this endgame will play out.
GameStop-crazy continues
If there’s one thing you should know about GameStop — in case you’re not already aware of this — it’s insane. Since 2021, nothing about this story has been normal. The company’s eBay proposal only continues this strangeness, which seems to have a lot to do with the shareholders.
To this day, the firm benefits from the charity of being the first and most visible example of the market being “rigged.” (During the pandemic, many large brokerages froze trading in retail-popular names, including GameStop, tainting the appearance among market newcomers about “fairness” in the market).
That “rigging” is partly why many retail investors hold the view that GameStop is still an anti-establishment asset; many still subscribe to the theory that Wall Street banks are rigging the stock through “naked short selling” and other forms of systematic manipulation. Of course, some of this “Stonkholm Syndrome” might be indicative of how much people with self-persecutorial ideas have clung onto the righteousness narrative and conspiracy theories surrounding the firm.
Regardless of all that weirdness, it’s ultimately the story that keeps them in the game. Cohen himself is also a solid ringleader; a magnet for crazies who tides over the hordes by doing an acceptable enough job of keeping the firm afloat, keeping shareholders engaged in the story, and flaunting disregard for the establishment. “Didn’t you guys call for GameStop’s demise multiple times?” He asked on CNBC.
GameStop is doing better than most people thought. However, that’s a low bar to clear for a company that was trading for cents rather than dollars in 2020. So much of why GameStop is doing better is about telling a story. And on Wall Street, generally speaking, the longer you can keep that story going — the better it’s going to be for you.
