GameStop’s $56 Billion eBay Bid Is Already Falling Apart

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0:45Today's number, one million. That's how many bees escaped a beekeeper's truck after it crashed on the interstate highway in Knoxville, Tennessee last week. According to transportation officials, local traffic was already congested, so this one will really sting.

1:14Welcome to Prof G Markets. I'm Ed Elson, kicking off with a terrible joke to start the week. It is May 5th. Let's check in on yesterday's market vitals. The major indices all fell as tensions continued to escalate in the Strait of Hormuz. The US and Iran exchanged fire as the US escorted two ships through the strait. That news sent Brent crude sharply higher, and the yield on 10-year treasuries climbed on the prospect of higher for longer energy prices. Meanwhile, logistics companies fell after Amazon announced it was launching its own supply chain services. FedEx fell 9%, while UPS dropped 10%.

1:57Okay, what else is happening? GameStop has offered to acquire eBay, a company four times its size, for$56 billion. CEO Ryan Cohen says the goal is to build a real competitor to Amazon. But the big question is, how does GameStop plan to pay for this? The company has around$9 billion in cash, and claims TD Bank will provide$20 billion in debt financing. Cohen says the rest of the money will come from GameStop stock. Despite the fact that the company is worth less than$11 billion, GameStop fell 10 % on the news while eBay gained 5%. So a lot of questions here. It is striking that GameStop is deciding to buy eBay and it is more striking how much larger eBay is as a company.

2:45So here to discuss this acquisition, we are speaking with our friend Rohan Goswami, business reporter at Semaphore. Rohan, great to have you on the show. So GameStop wants to buy eBay. It's four times the size. Just take us through how this can make sense, because it's something that's kind of confusing when we think about corporate M &A. How does this actually work? Yeah, so GameStop has an enterprise value that's the market cap plus debt of around $14 billion. And eBay's, as you said, is around$55 billion. It's a much bigger company. And so there are two ways that Ryan Cohen, who, of course, is the chairman of GameStop, the CEO of GameStop, and also GameStop's largest shareholder, there are a few ways that he's proposing to do this, right?

3:28So half of that deal, he says, as you pointed out, would come from about nine and a half billion dollars of GameStop's cash on hand, another 20 billion dollars in what financers call highly confident financing. That's TD Bank. His bankers haven't actually raised the money, but they feel, quote unquote, highly confident that they can raise that money. And there is like a beautiful poeticism to this deal happening right now. Several of my colleagues, including my co-host and colleague Liz Hoffman, are in Los Angeles at the Milken Conference, sort of like the pioneering corporate raider who in many ways pioneered this highly confident letter.

4:02So there's$9.5 billion of his cash,$20 billion of his stock. That brings us to around$30 billion. And the remaining$20 billion that he proposes would come from a massive dilution. He avoided using that word in his, frankly, disastrous CNBC interview this morning. but a dilution of existing GameStop shareholders. They would issue new shares that would then be handed over to eBay's existing shareholders. And that is how Ryan Cohen proposes to pay for this deal to take over a company that is, as you said, four times the size of GameStop. There are a lot of problems there. We can sort of unpack all of them.

4:37The thing I would just highlight for you out the gate, Ed, is that this is not business as usual for Ryan Cohen. Ryan Cohen is used to dealing with retail investors who are obsessed with him, who live and die by his every word. He's used to moving stocks 10 or 15 % up, just posting a little meme image of him leaning forward in a gaming chair. That's what he's used to. And frankly, he's dealing in the big leagues right now. And I know he likes to call himself the dumb money, and he says that the smart money is out to get him. But the fact of the matter is, Ed, he needs the smart money here. They're the guys who actually own eBay.

5:10And a lot of them went into this weekend. You saw how the stock moved on Friday when rumors first broke of this deal. The stock moved up 10, 15%. Investors said, whoa, okay, there's a real chance that this guy can pull this off. The second this guy started talking on CNBC today, the stock went from 10 % up, 9 % up, 8 % up, 6 % up, 5 % up. Investors just don't believe what he has to say. And that's going to be his real problem. You're not paying for it. We're dealing with the structure. Okay, so you mentioned his disastrous appearance on CNBC. We have a clip of that. Let's watch that. And then let's get your reaction.

5:42Arguably, if you're providing effectively all of your stock and then the cash that gets you to 20, you have this letter from TD. That's another 20. We're now at 40, but we're still off by, call it, 16. and the 20, as far as I understand, while it's considered a highly confident letter, meaning TD's saying they're highly confident that they would provide the financing, it's not locked financing. Yeah, we'll see what happens. I hear you. I understand that. I'm just trying to understand where the rest of the money would come from. It's half cash, half stock. I hear you. I'm just saying that that math doesn't get you to the to the price that you're offering.

6:39So that's a pretty straightforward question. I don't get it. Like, where's the rest of the money coming from? Andrew laid it out pretty clearly. I don't understand your question. We're offering half cash, half stock, and we have the ability to. Issue stock in order to get the deal done. So, I mean, there's so much to unpack in this moment. Oh, yeah. I mean, at first it seems as though maybe he's just confused about what they're actually asking him. But then he seems to kind of like admit the thing that I guess he doesn't want to say, which is that they have to issue new stock, i.e. dilute the shareholders.

7:20I mean, what do you make of this? Yeah, he's got two problems here. One, he doesn't want his retail shareholders to hear the word dilution because that's a scary word and it's not a great word. And two, he knows on some base level, I mean, he's an incredibly brilliant guy and he's a great businessman. He knows that eBay's existing shareholders are going to go, well, why do we want to trade our eBay stock, which just hit all-time highs, for potentially worthless GameStop shares that, you know, you could dump out of, retail could dump out of, that we don't really have any certainty in because we're hitching ourselves to this really unknown and still somewhat scary shareholder base.

7:54That's problem number one. problem number two is look Andrew's a former colleague he's one of the best interviewers of all time generally when you have the opportunity to make your case to the market and you're given 25 minutes on CNBC to talk about your long shot case your response isn't well I don't know and this wasn't in the clip but look at our website and you know you're preying on our downfall but I think that's part look I spent a lot of this morning and this afternoon talking to advisors on both sides of the aisle here, whether that's the GameStop side or the eBay side. I talked to folks who have known Ryan for a long time.

8:29I talked to institutional shareholders trying to get a sense of what the market thinks. And there was a perception, a very real perception reaffirmed by this CNBC interview that Ryan is a little bitter about the way that CNBC and the legacy press treated him in the 2021-2022 run-up where GameStop was on top of the world, where it was the MemeStop frenzy, and where he felt fairly unfairly, like Andrew Ross-Organ and folks at CNBC, had a target on his back and were kind of out to get him. And you could see that shine through in the passive-aggressive nature of the interview. The problem, as we sort of talked about just now, is it doesn't really matter what Ryan Cohen thinks.

9:02It doesn't matter what his retail shareholder thinks. It doesn't, as much as I respect Andrew, matter what Andrew Ross Sorkin thinks. There was one job that Ryan Cohen had when he got on CNBC's air, and it was to convince institutional shareholders, Vanguard, BlackRock, T-Row, any of these big, really sophisticated money managers that, hey, maybe I stand to make a chance at, you know, a buck 50 instead of a buck by going with Ryan Cohen's deal as opposed to sticking with eBay's deal or sticking with eBay's stock. That was his only job, to get those guys on the phone, to get them setting meetings.

9:30None of them, at least the ones that I've spoken to, have any interest in engaging with him, right? And that's his, I'm like, it's not like the last time we talked like a Paramount Skydance where you had a smaller company going after a bigger company. There, David Ellison was working the phones. He had sovereign wealth funds backing him. He had his dad's wallet backing him. At least there's real money here. And there was a reason for those guys to come to the table. Ryan here had kind of one shot to make his case to the street and blew it and blew it brutally by seeming kind of pompous and standoffish.

9:57Well, I was wondering, I was wondering if the pompousness and the standoffishness was intentional, if he thought that by coming off as this kind of like rude, kind of crass, cold individual, that he looked strong in some way. But what you're saying is you've pulled the room. It did not work. No one liked it. Well, Ryan is working. I should He's working two different rooms. You're absolutely right that it was intentional and that if you go on Twitter now, his fans and his retail fan base are loving it. They're talking about CNBC getting mogged. They're doing the whole, like, Andrew Ross Sorkin's spine is curved.

10:32And Ryan Cohen is sitting upright because he's, you know, mogging, to ape clavicular here, he's mogging Andrew Ross Sorkin. And that's great. Ryan is very used to playing that bass. Ryan has no experience whatsoever dealing with institutional investors in a deal context. Obviously, he ran Chewy. He's a public company CEO. So there were two different rooms he was going for. You're right that it was absolutely intentional, his standoffishness, I think. Nothing this guy does is by mistake. Unfortunately, that's not the room he needs to be winning over. He's got retail in the bag. They love him. They'll follow him to the ends of the earth.

11:04The institutional guys are going, dude, this is like hostile M &A. You got to take this seriously. It's not a joke. And he failed to win any of those guys over. Not a single one. So we always love getting a prediction from you. do you think this goes through? No, no. It's not even like 50-50, no. Unless Ryan A gets actual, some sort of really durable financing. And I know the journal in their report talked about some sovereign wealth funds getting involved. And to be clear, I've heard nothing about that. But every bit of reporting that I've done on the sovereigns the last few weeks, obviously given the conflict in the Middle East, suggests they're not interested in cutting really big checks and sort of getting involved in another messy bit of M &A.

11:44So unless he firms up his financing, unless the sovereigns come in, and unless he manages to sort of get in a time machine and undo the damage he did to himself this morning, no, there's no chance in hell. I would actually bet if I was allowed to bet and you were allowed to take the other side of that bet, that by Wednesday, not even by Friday, by Wednesday, eBay's board will have said, thanks, no thanks. And Ryan will sell his shares at a handsome profit and walk away. I love it. Rowan Goswami, business reporter at Semaphore. I really appreciate it. Thank you for joining us. Ed, always a pleasure.

12:20After the break, Elon and Sam face off in court. And by the way, we are heading out on tour at the end of the month. So for more info and to get tickets to a show near you, head to ProfGMarketsTour.com.

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13:43I'm Maria Sharapova, and I'm hosting a new podcast called Pretty Tough. Every week, I'm sitting down with trailblazing women at the top of their game to discuss ambition, work ethic, and the ups and downs that come on the path to achieving greatness. We'll dive into their stories and get valuable insights from top executives, actors, entrepreneurs, and other individuals who have inspired me so much in my own journey. Follow Pretty Tough wherever you get your podcasts. So we are 250 years into this American experiment, and I'd say it's going okay. I'd give us like a C+. There is no perfect past, but there is also no exclusively negative past.

14:27Because humans are gonna human, that's what we do. I think the story of America is the struggle of people who have not been included in the promise of America to expand those principles to include more people. What's going to determine the next 250 years of America? And how do we write a new social contract that can give us the democracy we deserve? OK, so I'm just going to be a jerk here because I'm a historian. So we have to have a prologue explaining, you know, we the people. OK, you know, I do still remember from Schoolhouse Rock. We the people anointed the former Warpherty Union, established justice.

15:04What is it? Ensure domestic tranquility? So you're talking about a foundational document. So I'm building a document that will protect American democracy. That's this week on America Actually.

15:22We're back with Prof G Markets. The Elon Musk versus OpenAI trial is heading into its second week. Last week, Elon Musk spent three days on the stand testifying that Sam Oppmann and OpenAI's president Greg Brockman conspired to, quote, steal a charity. Musk told the jury he would never have donated$38 million had he known it would be used to build an$800 billion for-profit company. OpenAI's attorneys pushed back, arguing that Musk was never committed to the non-profit mission and is only suing to destroy a competitor. Greg Brockman is expected to testify this week. Sam Altman will take the stand later this month.

16:04So lots to get into here. Here to discuss this trial, we are speaking with our resident corporate governance expert, Charles Elson, founding director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. And yes, a relative of mine, my uncle, Uncle Charles. Good to have you back on the show. Well, it's good to be back. There was an old 60s show that had a character called Uncle Charlie. As long as I'm Uncle Charlie. Uncle Charlie. Uncle Charles. He was a crotchety guy, by the way. Hopefully I'm not. So we wanted to get your reaction to this because this really is a corporate governance issue the likes of which we've never really seen, where you had this nonprofit, supposedly a charity, to Elon's point, and then suddenly you turn around a few years later and it's planning to go public at a roughly trillion dollar valuation.

17:04And so in a lot of ways, it seems like Elon Musk kind of has a point. But I'm not sure what the legal standing is exactly. And I wanted to get your views from the corporate governance perspective. It's a great question. Well, you know, first of all, I've never known, you know, Elon Musk's reputation is such that he is a very much a profit oriented guy. Certainly his compensation at Tesla and his obviously proposed compensation at space, that kind of bears that out. It's not I'm working to give all this money to charity. It's usually I'm working to give it to me who earned it, he will argue. So I think it's rather interesting to see him now on the side of the charitable giving nonprofit.

17:50I think that's kind of interesting. but I think you've got to look at this as kind of a battle between two egos, if you will or one very large ego, certainly and I don't want to say grudge match but someone has taken this idea, run with it and done very well the other likes the idea too and is running with it as well and suddenly you have two individuals who are in the same business effectively competing with each other And oftentimes litigation is used as a tool one way or the other to slow down the competitor or the competitor to slow you down. And this has sort of all the marks of something like that, I guess you could argue, or it's something rather personal between the two.

18:41But as a championing a charity, it doesn't feel like that from my standpoint. Because remember, Microsoft invested quite a bit in this. And this debate did not occur at the time that Microsoft made the investment. You think about it, Microsoft is a for-profit company. They didn't give this who their charitable arm. It was an investment for them. And I guess you have to ask yourself, well, why wasn't this point raised then? Why is it being raised now? when obviously the venture has become so successful. You've got a competing venture who you expect will be successful. That was you created a company that you had your Tesla shareholders invest in, even though they thought when they bought into Tesla, they were buying into AI.

19:28And, you know, it kind of leaves you scratching your head a little bit as to what is really going on. Is there really a nonprofit purpose in this or something else? It was interesting. many, many years ago, there's a very famous corporate law case involving Henry Ford. And Henry Ford stopped paying dividends in his company, Ford Motor Company, or reduced his special dividends, large dividends, claiming that he thought he had made too much money and that instead the country itself should enjoy the prosperity that he created through lower car prices, greater employee salaries, things like that. And the court said, no, a business is a business to make a profit, and your investors expected that from you.

20:11Well, that was the surface story. The underlying story, as it turns out, was that the investors who complained whose dividends he cut off, well, he cut off everyone's, but it was one particular group with two brothers named Dodge. And they were using the money to create the Dodge Motor Company, a competitor to Ford. And so it was argued that this really wasn't a case about the purpose of the corporation. It really was effectively an antitrust case. In other words, there was more to the tale. And on this one, there may be more to this tale too. Again, that's what the jury is supposed to figure out, what the judge is supposed to help the jury figure out.

20:47And we'll have to see. It's an odd one in that respect. I agree with Mr. Musk that the thing started as a nonprofit and it sort of morphed into a profit. But it'd be very hard to keep it as a nonprofit, given what it's involved in. And it's argued that from a governance standpoint, it probably should move into for-profit status as it creates greater accountability. But, you know, this is sort of uncharted waters. Rarely do you have nonprofits in these kinds of ventures. They're fair for the good of society. This one obviously had a significant profit potential, which is, I guess, going to be realized, or they hope they'll realize it.

21:25and he's created his own vehicle, which is not a non-profit, by the way, and effectively is in the same space. So one really has to wonder what is really going on here, and that's what the jury's got to figure out. Does the intent matter here? It sounds, I mean, because it seems as though, clearly part of the intent on Elon's part is that he doesn't like Sam Altman, he doesn't like OpenAI, he wants them to lose in some way, And that's kind of the case that OpenAI has made, and that's what they've publicly said. This is about jealousy, this is about ego, etc. At the same time, it also seems like the intent isn't to necessarily right or wrong, but it's to literally disintegrate the company.

22:10Like, he no longer wants this company to survive. And I wonder, to what extent does the intent of that matter? Along those same lines as, you know, if he decided to file this lawsuit now versus a long time ago, what does that say about the intent of the lawsuit? Does that matter in front of a jury? Does that matter in terms of the law? Sure. Sure it will. You know, the timing is something. Again, that was the story of Henry Ford. You know, why did you decide to do this now? Well, it turned out a different reason for it. And certainly a jury can consider that. Is this a meritorious suit in the sense that does he really want it?

22:54Is he doing this to benefit the public, which the nonprofit supposedly does, or it ultimately is about benefiting he and his own investors? And that's something I'm sure that they will consider. What's the motive here? What's the solution to this thing? If it ends up in the end, he's complaining about the nonprofit status of becoming a for-profit. If it disappears, let's say, who benefits? A for-profit. He, his company. Well, obviously, you knock out a competitor. Or you employ the competitor's employees. I mean, what is the real story here? Paul Harvey was a radio commentator in the 60s and 70s.

23:40And he always on his newscast had something in the end. He called it the rest of the story. He'd tell a story. And then he'd say, well, that's not really the real story. And I think the jury is going to have to figure out here, and with the help of the judge, what's the real tale here? If you objected to it being a not-for-profit, why were you when Microsoft contributed? Why instead didn't you contribute from a charitable foundation? Why did that occur? And you're certainly aware of it. Everyone was. why now when it looks to be extremely successful and you happen to have a business competing with it in the same space.

24:18And obviously he'll argue as he will that no, he never expected this, and et cetera, et cetera. And they'll argue as you spoke at the beginning of the segment that they say, no, this has nothing to do for-profit, non-for-profit. It's concerned about a competition and an ego match. And obviously, you know, he is not someone who, Mr. Musk, who people believe is a shrinking violet. Yeah. Just isn't. And Mr. Altman obviously has a well-known public persona as well. So the battle of the titans, it's an odd one. But, you know, it may have some impact on the future of AI, or at least who makes the money in AI, ultimately.

25:00Who do you think will win at the end of this? It sounds like you think Elon won't win. You know, I never like to predict stuff like that because it's hard to figure out. I mean, look, we're not in that courtroom. We haven't listened and heard what has been said or was going to be said. And that's why it's really tough to handicap anything. I mean, based on the argument itself and based on the history here, I think it would, to me, be a rather tough argument to make. I think they've got some very strong defenses, which they've obviously raised. But, you know, who knows? Both parties are ably represented, and the jury will have to sort this out.