There is precedent for this kind of trickery being played.

For example, Honeywell acquired Garrett AiResearch, a well known manufacturer of turbochargers for combustion engines, through a series of mergers.

Later on, it loaded them up with debt (over $1.5 billion, mostly asbestos related indemnity obligations from other parts of the business), before spinning them out as an independent entity again. Two years later, Garrett filed for bankruptcy claiming it was succumbing to the unsustainable debt burden placed upon it by its former owner.

Depends on how market cap is defined for the purpose of the contract. Typical definition is just against floating shares in the market * share price. Debt doesn’t factor in at all except in so far as it will influence investor confidence -> share price.

That said: conceptually it’s not an awful fit for GameStop. In so far as video games discs and cartridges were the main disposable belonging i had as a kid and the main target for new purchases, Funcoland was (later to become GameStop), if you squint your eyes, a brick & mortar eBay scoped to only video games. If you’d been an SV startup at the time pitching the eBay concept you could have said “it’s like funcoland, but online and for anything and also lets people sell peer to peer “

Well, his argument is that he can remove inefficiencies in the combined company.

GME is ~12B, EBAY is ~46B (58 total) with net income of 0.4B and 2B (2.4 total). If he boosts profit by 1.2B then it's nearly a 50% increase and probably going to result in a more valuable combined company despite the debt.

> Banks aren't stupid.

If they can gamble with other people’s money then why won’t they.

If they can get rid of those liabilities by offloading them in a hidden way why wouldn’t they.

If it all collapses and the government bails Them out, oh well.

It is different. You need somewhere to live. Buying a second home with what would presumably need to be at least a 90℅ mortgage is at best questionable.

I'm not sure the fact that somebody is already rich rich would make them less likely to perform ethically dubious practices to juice their own compensation. In fact I'd say the opposite is more likely.

If there's anything rich people famously hate, it's making more money.

Few CEO’s in the US are rewarded for longterm thinking when there are unsustainable quarterly gains to be made. GameStop also has a strange history, especially the last decade, that no one could possibly describe as “cautious” or “planning longterm.”

I also can’t name a single CEO who had the mentality of “I’m rich enough to make personal/financial sacrifices for the good of the company.” That’s simply not how things work. I’m sure an example exists but it would clearly be an exception to the rule.

they will be getting 20% more than what Ebay is worth today

I don’t understand either but wouldn’t they still be owning eBay? Just with GME?

Yes. See [1] for an overview of how this works.

When the SEC filing is made, we'll get to see how the deal is structured. The $20 billion from TD Securities becomes a debt obligation of the combined company. There's a tax break in equity to debt conversion, and a second tax break for carried interest. [2] There may be a preferred stock deal or debt refinancing so that TD gets their $20 billion back. Usually, the private equity firm exits within a few years.

[1] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121

[2] https://www.pgpf.org/article/what-is-the-carried-interest-lo...

No, unless any control transaction using any leverage counts.

A third of the deal is financed with debt. A fifth is financed with cash. The bulk—fifty percent—is being financed with equity. An LBO would see debt and a thin tranche of cash finance the bulk of the acquisition.

That's just for the cash part. The stock part makes no sense. For this 50/50 deal to work in principle, they'd need to issue around a billion new shares, which would massively dilute the existing ~450M shares. So Ebay shareholders would suddenly own 70% of Gamestop after the deal. It's also highly questionable if investors actually believe the combined stock is worth that much, so the stock price would probably fall and turn those 70% into >90%. At this point it basically becomes a reverse acquisition plus a large loan for the final company from the cash part of the deal.

The stock part is more like a merger than a buyout.

Yup.

How is a 20bn company going to issue 27bn worth of stock? Or are they just going to pretend the newly issued shares are valued the same per share as existing stock is right now?

They can sell now and pocket some extra money. What's not to like?

They already increased total number of stock by +39% in last 12 months, GME will squeeze the last penny from those people.

Yes, that goes into the '50% cash' part of the offer. With a 20B credit line and 7.5B cash from their own coffers (which they claim to have, so let's believe them on their word there), you cover the cash portion.

The issue is the non-cash portion of the offer. They claim that the remaining 27.5B is covered by GameStop stock. But that's more than double the market cap of GameStop.

It is implicitly implied in many comments.

I think you are under reacting.

AOL/TimeWarner, Kmart/Sears… lots of prominent examples.

They better not ruin eBay, it's actually a useful business, I use it all the time

Is there anywhere a good breakdown of these leveraged acquisitions. Like a video or something that breaks down how that exactly works and why its legal and why the acquired company goes along with it. Its seems like such a strange mechanism. And the history of it.

Agreed that Marvin would find this (and everything about Earth) ridiculous.

I propose this would make sense in the animal kingdom though; large, lumbering fatty walks along. It has big claws, but … it doesn’t look like it can be bothered to be dangerous anymore. Meanwhile a pack of hungry successful hunters walk alongside. To take this down, they will risk pretty much everything..

It’s the same story. The shareholders provide a sort of bet on if the big guy has still got it, or the risk-on hunters do.

That’s why the operational results got attention in Cohen’s letter — he’s telling Shareholders: “I turned around GameStop. I can turn this ship around, too.”

This very specific corner of the internet has no idea how your metaphor is supposed to work, which is why I like it so much.

> ...sneaker company that pivoted to data centers set the 'weird' bar pretty high...

"Weird" is the wrong word for Allbirds. "Fraud" is far more fitting. They obviously have no intention running an AI-datacenter business and are doing it for the stock-price rush. A small number of people will be laughing all the way to the bank, and everyone will forget Allbirds in short order.

Ebay has a history of being legit, though they have had a long list of uncanny acquisitions themselves (including Skype, which they later sold for a stiff loss). It's a pity they couldn't just execute on their core business and are now being acquired themselves by an entity using sketchy financial shenanigans.

Who's going to stop a few rich people with a pile of money and a stated intent of doing something they have no intention of doing? No one, I guess. I mean, there's plenty of examples. Supermicro is still listed on NASDAQ even though one of their founders was caught smuggling export-controlled GPU's in Supermicro servers to the tune of 2.5 billion dollars a couple months ago.

Based on my own experience with GameStop, that will convince me to stop using eBay completely.

EBay is running a platform (very successfully) not a pawnshop.

Is that market really that large? That sounds very niche, but I don’t know the collectible world

In this case, if the deal goes through at the price given, eBay's liquid assets are untouched. The cash portion is paid out entirely through the loan and Gamestop's cash.

I mean he pumped and dumped BBB, and those people (or should we call them apes?) still love this guy.

those guys have a very strong track record of getting their way lately

What would make it better? My only complaint as a seller is fees. I have no complaints as a buyer.

The best part is eBay works exactly the same as 10 years ago, as far as I can tell.

It’s still way better than Facebook marketplace. At least eBay mostly solved the scam issue. Zuckerberg seems to desire fraud on his platforms.