Corporate takeovers that collapse usually leave the acquirer with nothing to show for the effort. GameStop Corp. (GME) just found the exception.
The retailer’s rejected $56 billion bid for eBay Inc. (EBAY) left it holding a stake that is now carrying its entire earnings story, even as its core video game business keeps shrinking.
GameStop said in an Aug. 31 press release that it expects preliminary second-quarter net income between $290 million and $310 million, nearly double the $168.6 million it earned a year earlier.
Net sales are projected to fall to between $780 million and $800 million from $972.2 million. The company attributed this decline to store closure, the divestiture of its France operations, and a tough comparison against last year’s Nintendo Switch 2 launch.
The profit did not come from selling more games. About $238 million of the gain came from converting GameStop’s eBay derivative position into 43.4 million shares of eBay stock, now worth roughly $4.9 billion.
That was partly offset by a $75 million loss on digital assets and related receivables, the company said in the same release.
A failed $56B bid is paying off anyway
That eBay position is not spare change sitting on the balance sheet. It is the residue of CEO Ryan Cohen’s unsolicited offer to purchase eBay outright in May, which eBay’s board rejected as “neither credible nor attractive” according to according to Bloomberg.
Cohen kept buying the stocks anyway, pushing GameStop’s stake toward 9.75% by mid-July, making it eBay’s second-largest shareholder behind Vanguard’s index funds.
Related: GameStop just cleared a hurdle nobody was watching
The accounting from that pursuit is now doing more for GameStop’s bottom line than its roughly 1,600 stores are doing for it.
It’s an unusual outcome for a deal Wall Street mostly dismissed as a long shot. It means this quarter’s headline profit number says more about eBay’s stock price than about GameStop’s retail turnaround.
GameStop is also reshaping $1.4B in debt
GameStop revised the terms of a separate debt exchange the same morning. Noteholders will now receive about 55.5 million shares and $358.4 million in cash, funded from cash on hand, according to a regulatory filing.
The original deal, announced in August, would have settled the entire $1.4 billion in stock, with share count tied to GameStop’s trading price over a 35-day window.
More GameStop:
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Cutting that stock-only structure short means fewer new shares hit the market now. The timing lines up with a separate GameStop ambition: shareholders voted in July to authorize up to 2.5 billion new Class A shares specifically to fund a bigger stock component of a future eBay bid.
Trimming today’s dilution preserves more of that pool, whether GameStop revives its takeover or settles for the joint venture Bloomberg has reported Cohen is now weighing.
Other figures worth watching
- Collectibles and trading cards made up 41.8% of GameStop’s first-quarter revenue, up from 28.9% a year earlier, showing retail strength independent of the eBay stake.
- About $2.8 billion of the original convertible notes will remain outstanding once the revised exchange closes around Sept. 3, per the filing.
- GME shares rose roughly 4% in premarket trading Monday after the earnings news.
- Complete second-quarter results, which may include an update on the eBay pursuit, are due September 8.
What this means beyond GameStop
GameStop’s quarter is a preview of a pattern investors will likely see more often.
Companies that build large equity stakes ahead of a takeover attempt, rather than walking away when rejected, end up carrying that position’s market swings straight into their own earnings.
The stake becomes a second business investors have to value and monitor separately from the one the company actually runs.
GameStop’s Sept. 8 report will show whether the retail turnaround is real on its own terms.
Until then, owning this stock is only partly a bet on video games that is slowly going out of fashion. It is also a bet on how a takeover nobody expected to happen keeps finding new ways to pay off.
Related: The eBay deal Ryan Cohen swore he wanted is falling apart
