Can GameStop Really Buy eBay?

0:05My name is Lauren Thomas and I am a deals and activism reporter here at The Wall Street Journal. And Lauren, we're talking to you because there was a proposed merger and acquisition, proposed deal that caught a lot of people's eyes recently. Can you tell us what that is? Yes, big headline number for sure. GameStop officially submitted a proposal, a$56 billion proposal to acquire eBay. GameStop, which is worth about$11 billion, was offering to buy a company four times that size, eBay, the commerce giant. What did you think when you heard that? Yeah, I mean, probably like everyone else was scratching my head a little bit.

0:47You don't often see these smaller companies coming out and trying to buy much larger businesses. So that in and of itself, I think, provides some shock value. So Lauren called the man behind this audacious plan, Ryan Cohen, the CEO of GameStop. Walk through like what ultimately led you to eBay? I think that eBay under my walk, it really comes down to like scale, being able to do something big. You're right. And I think eBay, there's nobody who is more qualified based on my experience to run the eBay business. I could turn that business into something worth significantly more than what eBay is today.

1:38Yeah. And I can grow it and I can make it a lot more money in a very short period of time. and it could be like a legit competitor to Amazon. For Lauren, the deal raises a big question. As an M &A reporter, anytime you see a deal, I'm always asking myself, well, how are they going to pull this off, particularly in terms of financing? How are they going to pay for it?

2:05Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Friday, May 8th.

2:18Coming up on the show, GameStop makes a play for eBay.

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3:37Ryan Cohen got a start with the online pet supply store Chewy, a company he co-founded in 2011 and sold to PetSmart. Since then, he's built an online following as an investor. And what is the allure around Ryan Cohen? I mean, he's not exactly a household name, but he is kind of a cult figure. Totally. I think why so many people ultimately have found themselves connecting to Ryan and being drawn toward Ryan is he does in a lot of ways kind of represent. the everyday average Joe kind of trader, investor. He's just kind of your anti-Wall Street guy that's definitely struck a chord with a lot of people, particularly younger people coming up in this world and trying to find ways to make money on their own.

4:22Cohen built that reputation in 2020 when he took an interest in the company that would come to define his career, GameStop. Ryan Cohen had been building a stake in this company, had by then built a pretty significant stake, making him one of the biggest shareholders in GameStop. And he basically showed up and started pushing for changes. He wanted new management. He wanted GameStop to rethink things strategically. And it was really an activist play in large part. He was there. He was trying to get inside the company himself in some sort of leadership position. In January 2021, GameStop offered Cohen a seat on the board.

5:03And around that time, the company's share price exploded. It went crazy, exactly. Shares of GameStop were up 134 % today, continuing an unlikely rally. The battle between short sellers and a group posting on Reddit, with the stock shooting up and fluctuating wildly. GameStop shares have now risen some 700 % year-to-date. Retail investors, especially people on Reddit, took the company's stock price from less than$5 a share in 2020 to a high of almost$500 a share. Ryan Cohen was, he kind of became part of this community and really spoke to this community of people that started rallying behind him.

5:43And he kind of became the chosen one. The meme overlord in Ryan Cohen, the meme king of Wall Street, is striking again. He is the meme stock king because of his role at GameStop.

5:57A few months after joining, Cohen became chairman of the board and then became CEO in 2023. Since taking the helm, he's focused on making GameStop profitable. Under Ryan Cohen's leadership, GameStop has shuttered thousands of stores, you know, in malls all across the U.S. and Canada. And so, you know, when you talk to Ryan, it's all about cutting costs, you know, getting the business profitable again, where it's producing cash flow. The company has managed to turn a profit. and currently GameStop trades at around$25 a share. Pretty healthy, but far from the company's meme stock high. And sales have fallen in recent quarters.

6:38But that is probably in part, you know, why Ryan Cohen is looking to do something big because he, you know, from his perspective, he needs to make big moves, possibly pursue a big deal in order to keep growing the business. And you spoke to Cohen over the weekend about his proposed deal with eBay. What did he say? What is his business case for it? So in talking to Ryan Cohen, he's laid out the case for why he wants to do this deal. He told me, you know, this is a company that he thinks could not just be worth 50, 56 billion dollars, but it could be worth hundreds of billions of dollars if he was running it.

7:17I'm thinking about turning eBay into something worth hundreds of billions of dollars. Yeah. Then we'll see what happens. Right. Right. I'm focused on, I'm going to be as focused on eBay and as personally involved as I've been in the GameStop turnaround for the next few years. Right. Now that this has started to get out, like maybe there's like some negative like criticism out there. Oh, how does he pull this off? How would you respond to that, I guess? Well, look at GameStop. Right. All the naysayers. Yeah. GameStop. is going to make a lot of money this year. Yeah. So who would have ever guessed that?

7:59No Wall Street analyst. Nobody. Right. Nobody in the media would have ever guessed. And by the way, I wouldn't have guessed either. Right. But we cut a lot of costs and the company is doing well. So imagine going in and basically taking that playbook of just like cost efficiency and a maniacal focus on cost to eBay. because GameStop, it doesn't deserve to be alive. Yeah. And it's making a ton of money. So imagine how much more money eBay could be making. Cohen was clear. The GameStop playbook, slash and restructure, is what he's hoping to bring to eBay. He says he would cut costs and improve earnings by putting the two companies under one roof, since they already have some overlap, including a focus on selling collectibles.

8:50And Cohen says GameStop's physical stores and eBay's vast online reach would complement each other. eBay today is doing the same thing it was doing a long time ago. We can leverage GameStop's physical infrastructure and stores essentially as both like authentication and intake sensors. And Ryan Cohen has said eBay's a great company and they've got a lot going for them. I think he just thinks they're not doing enough. eBay is bloated. They have a very bloated cost structure. They're under-earning. And I can make the business a lot more money for them, too. And so I think he views it as a great digital platform where he could get in, you know, get his hands dirty.

9:36And it's a starting point to build something much larger than what it is. But eBay was not soliciting any offers. And since Cohen went public with his proposal, eBay has said very little about the deal, except that they received the offer and are reviewing it. And Lauren's reporting suggests that eBay may not be interested in a deal because the company is doing pretty well on its own. In terms of conversations I've had with folks that know eBay really well, people that work with eBay, have worked with eBay in the past, are very surprised and view this as a long shot. And I think a lot of what I've been hearing from the eBay camp is just look at how our business is doing.

10:20Like we're doing great. We're doing great on our own. We're not a company that's like in trouble, about to go bankrupt. Like, no, no, no. So it's it's it's not necessary from their perspective. Besides, eBay has already been shoring up its business by cutting costs, acquiring a fashion reseller and even getting into AI. Because who isn't? So Jamie Iannone, since taking over as CEO, has made some really bold moves to get the company back on solid ground and to help turn things around. And some cost cuts have been part of that. You know, we've seen some layoffs and corporate restructuring while he's been CEO.

10:59And I think another pillar has really been thinking about who is the eBay customer and really making sure that the company goes after that younger consumer today, like every other business wants to have. But eBay in particular has really been laser focused on making sure that there are products on their website that younger shoppers are looking for and want to really keep that excitement going there.

11:25So does eBay need the turnaround that Cohen says he can give the company? You could argue yes and no at the same time. I mean, sure, he says he could scale this thing into hundreds, a company worth hundreds of billions of dollars. Like, that sounds great in theory. Sure. You know, but is eBay necessarily, could they ever be a company worth hundreds of billions of dollars? And maybe they don't want to be, you know, maybe there's a sweet spot that's smaller than that. And so I think it remains to be seen, like, just how much could eBay scale? How much could eBay scale and how much should they scale at the end of the day?

12:06But for Cohen, his bid for eBay is part of a far more ambitious vision. That's next.

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13:23To anyone that doesn't follow GameStop closely, its bid to buy eBay may sound strange, but Lauren says Ryan Cohen has been thinking about it since at least January. Ryan basically told me at the time that he was looking at big deals. He had ambitions to pursue big M &A through GameStop. He wanted to try to go after a large company. So he's definitely been laying the groundwork that this was at least something he was thinking about. He has GameStop now. Again, this is a company that's got a market cap of, say,$11 billion,$12 billion on any given day. But he wants something much bigger than that.

14:04Cohen's vision is to build a corporate empire. Ryan Cohen, just as an investor, has always hinted at this idea of, you know, being like a Warren Buffett and that he's taken from people like Warren Buffett and Charlie Munger and how they think about investing. Buffett and Munger famously took a beleaguered textile manufacturer called Berkshire Hathaway and used it to acquire companies like Seize Candies, Geico and BNSF Railway. And you look at a Berkshire Hathaway, today it's a big conglomerate. It's a big holding company and it has all of these other businesses that are very different within it.

14:42And so I do think that's part of what he's trying to do here with GameStop and eBay. And Cohen's goal is to take GameStop from an$11 billion company to a$100 billion conglomerate. That's about the size of companies like CVS, Hyundai or Comcast. Call it GameStop Hathaway?

15:05And if Cohen succeeds, he could make a lot of money. One reason we know that Ryan might have his sights set on that$100 billion market cap is because the company GameStop actually adjusted his compensation package earlier this year, which basically says, you know, he's not he's not taking any salary. He's not taking any pay unless he hits some of these financial targets, which to many people seemed like a total moonshot. And so, you know, if he, again, hypothetically, he were to achieve, you know, these big profitability targets and market value of over$100 billion, he would be compensated and rewarded as a result.

15:48A merger with eBay would be the first big step toward that$100 billion goal. But the big question around the deal is still, how is Cohen planning to pay for this massive acquisition? GameStop has about$9 billion on its balance sheet. Cohen says the company can get up to$20 billion in debt financing from TD Bank. If you're doing the math with me, that very much does not add up to the proposed$56 billion acquisition. Cohen was asked about that math on CNBC the day after he announced his proposal. And he didn't really offer a solution. This was his first interview, seeing what he had to say. And it really, you know, it really, it didn't give much, I guess.

16:30I think people walked away from it kind of wondering, like, what exactly was that? As the interview went on and on, you know, you could see that he was less and less interested in kind of engaging with the anchors. Sort of walk us through how you could get to that price and how it would work. It's on our website. It's half cash, half stock. But the details are on our website. Can you help? I've read them, but can you help our audience understand them? Yeah. Which part exactly? And I think it was uncomfortable and awkward at times. And there were moments when Ryan would just draw a pause and not really respond to the questions that were being asked of him.

17:21I'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 price that you're offering. And so it was, you know, it was unique. It was not necessarily, it's not the interview that you would expect a CEO to be given the morning after they make a$56 billion takeover proposal. To be clear, Cohen doesn't have to have all the financing figured out at this stage. and there have been plenty of successful takeovers where the buyer didn't have all the money to start with. Think of Elon Musk's acquisition of Twitter or Paramount's recent acquisition of Warner Brothers Discovery.

18:08So Cohen still has time to work out the kinks and Lawrence says there are a couple ways to do it. One, obviously, is to get more money. Could he bring in outside investors? Could hypothetically you see some private equity firms get interested in this deal and say, hey, I want to put a couple billion dollars in. One other idea that has come up is the idea of sovereign wealth funds getting involved in the deal. And I would imagine that those are the kinds of conversations, now that this is public, that are taking place behind the scenes. Another way that Cohen could shore up the finances of the deal is by issuing more stocks of GameStop to give to eBay.

18:50Though that's a risky move, because it could make the price drop for people who already own stock. But at the same time, I think the GameStop shareholder base is so unique. It's been unique really ever since Ryan Cohen got involved. A lot of people that hold shares in GameStop are loyal to him. And so I do think it's a situation in which you could see him almost getting away with it to a certain extent, given, you know, people are generally so supportive of him within this community that he might have some more leeway to do it here. Cohen told Lauren in their phone call that if eBay rejects his offer, he would consider mounting a hostile takeover.

19:32One more question for you. If eBay is like, no, we're not interested in this, have you thought through, like, possibilities of how could this play out? If they don't engage, I mean, then we'll end up opening. being a proxy fight and we'll go direct the shareholders. Yeah, all right. And the relationship seems to be at least somewhat frayed. On Wednesday, Cohen posted on X that eBay had suspended his account on the platform. He says he'd been selling collectibles on eBay to buy eBay. The account has since been reinstated. What does this tell you about Ryan Cohen himself and where his story might be going?

20:15Yeah, I think this is Ryan Cohen's next chapter. This is him coming out and saying, look, I'm still here. In fact, I'm back. I'm ready to do my next thing. Hope you haven't forgotten about me because here I am. And it just shows what he's been cooking up behind the scenes. When people might have written him off as just the GameStop guy, he's certainly proven that he's got much bigger ambitions.

20:44by the way if you want to hear more about the GameStop saga we actually made a whole series about it called To the Moon the link is in the show notes

20:56that's all for today Friday May 8th additional reporting in this episode by Peter Rudiger The Journal is a co-production of Spotify and The Wall Street Journal The show is made by Laura Benshoff, Catherine Brewer, Pia Gudkari, Max Green, Sophie Codner, Ryan Knudsen, Matt Kwong, Colin McNulty, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez Espinosa, Heather Rogers, Pierce Singhe, Jivika Verma, Catherine Whalen, Tatiana Zamis, and me, Jessica Mendoza. Our engineers are Griffin Tanner, Nathan Singapak, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Katherine Anderson, Marcus Begala, Peter Leonard, Emma Munger, Griffin Tanner, So Wiley, and Blue Dot Sessions.

21:43Fact-checking this week by Mary Mathis. Thanks for listening. See you on Monday.