The INSANE Loophole GameStop Could Use to Pull Off Buying eBay (4x its size)

Added: 2026-05-09

[00:00:00]What do we make of the fact that Michael Bur apparently sold out of all his shares of GameStop?

[00:00:10]Buckle up because we have a lot to talk about. The latest developments in the GameStop's attempt to acquire eBay drama. So Kristen, where we last left off is we were analyzing the CNBC interview where the CEO of GameStop, Ryan Cohen, was being interviewed by Aaron Ross Sorcin and a bevy of other CNBC commentators talking about making a halfcash, half stock bid for eBay that to us at the time made no sense. Since then, we've had a number of developments in this story that I, full confession, do not fully understand even after all of this. So Kristen has talked about how this kind of looks like an LBO. This kind of looks like a spack, this kind of looks like a spark. All of these acronyms that are basically gobbled for the average person, aka me as your standin for that today. So Kristen, can you please catch us up on what the latest is? And could GameStop actually pull this off is what we're going to be trying to figure out today. So with that, I want to actually use this analogy. We did this example on our social media, so over on Instagram and on um YouTube Shorts. But the way that you can think about it is as follows.

[00:01:19]Pretend you have a house and you whatever putting up for sale. You want to get a million dollars for it. Your neighbor who lives next door knocks on the door and they offer you a million.

[00:01:27]You're like, "Great. Where's my cash?"

[00:01:29]They say, "Hold on. I'm not going to give you that million dollars of cash.

[00:01:31]Here's what I'm going to do do instead.

[00:01:33]I have $150,000 somehow that I'm going to give to you. In addition, your house is nice. Like you have a nice big house, million dollar house. I can go to the bank and I can get $350,000 and lever it up against your house and then the remaining $500,000 hole because again you need to come up with a million dollar to buy the house. You've come up with the 150 plus 350 that's 500. The remaining 500 I don't have the money to give that to you. No, no. Instead, you are going to get basically ownership in this now combined property that we have with your million-dollar home and my $100,000 home. It's worth one $1.1 million. you're going to get equity in that, ownership in that, and that's how I'm going to basically pay for the deal.

[00:02:10]I picked those numbers, by the way, on purpose because when you look at GameStop versus eBay, while the market caps, meaning the equity values of the two companies are basically off by a factor of four, so eBay, I think their market cap is something like $50 billion, but when you factor in the premium, they're offering 56 billion.

[00:02:28]GameStop is like 11. When you look at the value of the firms themselves, that's where the discrepancy is even more stark because with most companies, you have equity and then debt.

[00:02:39]Typically, the value of the entire firm is greater than the value of the equity.

[00:02:43]With GameStop, it's the opposite. The actual value of the firm is lower. Their equity is higher than the firm value because they have $9 billion of cash.

[00:02:50]So, it's almost like you have a house that's worth $100,000 that's sitting on, I don't know, $500,000 worth of oil. So the value of the equity is worth more.

[00:02:59]So I just wanted to make that point that the value of the firms themselves are like a 10x difference. The value of the equity is about 4x anyway. Um does that work? Yes. And again maybe your neighbor is a famous house flipper and can they come in? Can they fix it up? Can you potentially improve the business and ultimately sell for more? Yes. But the problem is, and I use this analogy, is like pretend you also happen to be in a hurricane zone and like there's also a decent chance that your house is no longer going to be there in a couple years because that's basically what with the GameStop offer, that is the risk that they are taking on. And the reason that there is that extra risk is because of the amount of debt that GameStop wants to pile on the business in a amount that is so high. I I looked up what is the chance of bankruptcy over like a three to five year time horizon for a company that's levered up this amount of times and for Claude it was something like 30 to 35%. But that amount of leverage is very high. And it was interesting because on social media we put this video out. I actually had someone who I don't know how this guy found us but he was like I used to be the investor relations person for Caesars. And I was like interesting that you said he used to work at Caesars. I mean, we just did a case study of where Caesars was bought in 2008 by Apollo and TPG, two of the best operators in the world in a leverage buyout, levered up, and ultimately what happened even though the thesis was correct that like the gaming industry was set to explode and the business ultimately killed it, not before they went bankrupt and all the equity was wiped out. So, the point is, is there a case that you could have this turnaround? Yes. And I I think that there is reasonable, but the way that this deal is structured a is not the way that it was presented. It was initially like we're gonna do half cash and then half GameStop shares. And the way that your sort of traditional person on Wall Street who's like, you're offering me 56 billion. Where is the money coming from?

[00:04:45]But then it was like, wait a second, it's not GameStop shares, it's going to be this combined entity shares. So it's mostly coming from rollover equity. The way that he presented it on CNBC was not the same way that it was presented the next day. So the way >> so let's talk about this rollover equity concept because I think that this is confusing to someone like me who hears your initial example and thinks like okay this starts to look like seller financing but then it's like no it's not the seller doesn't even get their equity they just are now we it's like you enter into a partnership with someone rather than actually like selling your asset and cashing out in any way shape or form. So there's good precedent for this rollover equity concept of late and particularly with some deals that involve the kind of concept of a spa.

[00:05:28]Can you talk about that?

[00:05:29]>> Yeah. So spaxs are this thing that was all the rage back in 200 well 2021 >> the same time as the GameStop run by the way. So all of this was a function of a zero interest rate environment that where everyone was just like I am sitting on so much cash. I need to do something with it. I gotta put it somewhere. So people were like you said coming up with these spacks and also playing in meme stocks.

[00:05:55]>> Right. Right. Right. So the thing with the spa and it's interesting because we initially introduced it again in the concept of a company that also went bankrupt, we work. So we work tried to go public and actually I think that it's the easiest to understand the spa by understanding the process of an IPO which might seem like wait a second this is so random but it actually makes sense. So, let me just give you the sort of TLDDR on the IPOs because, by the way, we're going to see a bunch of IPOs coming up soon between SpaceX and Antropic and OpenAI and all that kind of fun stuff. Okay, so typically when a company goes public, right, if you have a whatever a billion dollar equity valuation, you go to the market and you raise, call it $200 million, you're going to take some portion, some smaller percentage of the company public. Now, when you do that, there's typically a split. And this is something that I think is interesting as well and even in the context here where it's like equity is not only one thing. So when you do any kind of equity offering like it depends on whether the cash that people are investing is primary or secondary.

[00:06:45]Is it going to the company and increasing their balance sheet or is it going to existing investors who are cashing out? So in the case actually even going back to a GameStop like if they were to go out they have like I said this 11 billion market cap. if they were to go out to the market right now and raise additional cash and they have all the cash come in in as primary proceeds because now their cash balance goes up they'd increase the market cap of their business which potentially is helpful for them if they then were to go and buy eBay and so that was one of the things that we were kind of initially thinking like could they try to get their equity value up by doing this and it's like well kind of because you would need to basically issue so many additional shares into the market will the market support that high PE multiple probably not so it's this whole big thing But anyway, back to IPOs. When you do an IPO, you have a billion dollar valuation. You're probably only taking, call it, 20% of the company public. And so the end result is that you have again a billion dollar of equity valuation, but $200 million of shares that are trading in the market that people can buy. So that is the end goal with an IPO. A spa was introduced and back with my Weiwork example, Weiiwork tried to go public. They had a massively failed IPO.

[00:07:52]Adam Newman was an incredibly charismatic founder was burning through cash left and right. One of the sort of almost like last stage ways that they were trying to raise money wasn't go public and the market was just like what the hell is this community adjusted EVA like all of your numbers are fluff and they were not able to actually successfully execute it. However, fast forward a little bit and they were able to go public via a spa and then ultimately went bankrupt a few years later. But basically here's how the spa works. So a spa is and again it stands for special purpose acquisition company.

[00:08:19]You will get some kind of sponsor. So some kind of person that you trust and so Chimath Palatia was sort of known as the spa king but you can have other people you had like Martha Stewart you had I mean Bill Aman tried to do a spack and we'll come back to him you go out to the market and you raise a pile of cash this is now traded on the open market so like it's an IPO there is a share price like it's traded whatever this spa has to now go out and find a company to buy so I'm going to use some numbers here so pretend that you go out and you do a spa and you raise $200 million what happens now is that that spa that pile of cash has to go out and find a company that is something like four to five times larger than they are. So if they identify a billion dollar company, they would buy the private company. The majority of the financing to the deal because you only have $200 million, but you're buying a billion dollar company. The majority of the financing is going to come in the form of what's called that rollover equity. So $80 million is actually from the existing investors who had put money into the business. But the end result is it looks just like that IPO that we talked about. meaning you have 20% of the company that is then publicly traded. So it was almost like a back door into going public. But the whole idea is that it was like you had this rollover equity and that was the main financing like of how you have a $200 million company buying a billion dollar sorry a $200 million um pile of cash buying a buying a billion dollar worth of equity in a business.

[00:09:36]>> Okay, fast forward. Bill Aman tried to do a spa and it failed. He was trying to do a spa with Universal Music Group. It would have been like a minority investment. Long story short, the SEC was like, "You can't do this." And so he ultimately was not able to successfully do a spa. He couldn't find a company to buy. So he had to liquidate. But what he did instead is he created something called a spark, a special purpose acquisition rights company. And he, by the way, paid $10 million to get the SEC to approve it. So the way that the Spark works, it's actually never been executed. And who knows, maybe he won't be successful. But the idea is people who have rights in the spark can then after he identifies something he wants to buy they can decide whether to put the money in the spark would then buy an additional call it 7% stake in UMG but because it was structured similarly to this back where it's the majority of rollover equity and all that the way that it was being written about in the financial press was $64 billion takeover offer by Bill Aman when really what was happening is he was offering like $2.5 billion dollars again as an activist to increase his stake but because of the structure the mechanics of the deal, it could be reported as as a takeover, like I said, with all this rollover equity. And so that is where we find ourselves now with this GameStop offer. So what's interesting about the GameStop offer, right, is it's $56 billion on paper. So they are valuing the equity in eBay at $125 a share and saying that the way that it's going to be financed is half through cash. So again, $125 grossed out to $56 billion, $28 billion of cash, and then $28 billion of stock. Again, they're not actually financing that with GameStop shares. It's basically like, hey, eBay shareholders, you're going to pay for the majority of that yourself, >> right?

[00:11:16]>> So, and there's a couple of other things going on as well, which is on the cash side. GameStop does have the $9 billion of cash. the $20 billion of debt that they have basically a letter would be using the majority of the debt capacity of eBay. So I saw like Matt Leavine said that the expected EBIT Duff or GameStop in 2027 is like $450 million. I think the LTM numbers are 300. Usually you are able to get debt based off of LTM.

[00:11:41]Regardless, that's like maybe $4 million if you're levering up a 10 times whereas the majority of the financing is coming from eBay's balance sheet. Now then on the other side is the equity where the majority of the money that's coming there would be actually from equity shareholders in that rollover equity and then on a pro fora basis the combined company would then be 40% GameStop share uh ownership and then 60% eBay shareholders. So it's interesting it's like you have a company where the majority of the financing from for the debt side is coming from eBay's balance sheet. The majority of the equity is coming from eBay's balance sheet, and eBay is going to have the majority of the equity in the combined business, but it is being positioned as a takeover by GameStop. Let me pause.

[00:12:21]>> Why would eBay ever agree to this? I've seen a couple theories floating around.

[00:12:26]Um, I'd love to hear your take and we can kind of get into the drama that's happening because this is not your typical corporate takeover like, oh, have your lawyer talk to our lawyer.

[00:12:35]This is playing out on social media in the press. So, I'm curious, why on earth would eBay potentially even entertain this?

[00:12:42]>> I actually think there is potentially a good case for why they would entertain it, but not the way it is now. And the reason I'm saying not the way it is now is that think about you're an eBay shareholder. So, you're basically being told, I'm going to give you $20 billion.

[00:12:54]Like, the majority of the cash that would be given to them is based on their own balance sheet. They can do a dividend recap today and take that cash out if they want. So, they don't need GameStop for that. But also, if they're already shareholders, they probably don't necessarily want to get levered up that much because if you lever yourself up that much, back to my hurricane example, like there is now all of a sudden a very high risk of bankruptcy when you take on that much debt. So, in my opinion, if this was a deal where like they revise the offer and take the cash portion down and aren't going to like lever the crap out of eBay shareholders, I can see an argument for why they might accept and I'll get to that in a second. But the idea that you're going to basically be like, I will accept cash that I could do in a dividend recap myself to now be in this incredibly risky business. Is there this chance there's a turnaround? Sure. I mean, this is what private equity firms do all the time. I think that the premium is like far too low to be like, I'm going to basically only take half of that money off the table and now be in this incredibly risky company for only a 25% premium. I think that's a hard pill to swallow. Here's where I think that it's less crazy if it was an all stock deal because here's the thing. thinking about the relative pees of the two companies. So the the PE of GameStop is much higher. I think it was like 34 times to call it 24 for um for eBay.

[00:14:06]Okay. So they're basically coming to the table and a lot of times in M&A you'll just be called like a contribution analysis. So how much in sales are you contributing? How much in eBay are you contributing? How much? All these different things.

[00:14:15]>> So as you're kind of coming to the table, it's like, well, who's contributing more? And again, if you are at a higher PE, it means that you're basically contributing less because the market is placing a premium on the value of your equity. So, as they are potentially saying, as we come together, um, typically there is that control premium in a takeover. So, if you are eBay and you're like, "Hey, I can do this deal where I'm basically buying GameStop and instead of buying them for a premium, there's a premium on me."

[00:14:39]>> Yeah, you're basically going to get a discount. I think that that's a decent argument. By the way, why is there a premium? It's called a control premium.

[00:14:45]So the premium is valid because again Ryan Cohen wants to take control and become CEO and all that stuff, but you're able to then potentially merge potentially have a turnaround story and again you're sort of like resetting the prices where eBay is coming into this at a premium versus like a discount. So I think there is a valid argument for an eBay shareholder to accept if that was the case. I I would have a hard time understanding with the current offer where it's like we're gonna lever the crap out of you using your own balance sheet and your equity is now going to be so much higher risk. I think that's a lot harder in my >> Got it. So what do we make then of the fact that okay if in fact this is like an uno reverse situation where it's like eBay now effectively wanting to buy or would need to want to acquire GameStop effectively. What do we make of the fact that I've seen on social media this morning allegedly eBay deactivated CEO Ryan Cohen's eBay account that they are brutally rebuffing this stories of the bloat at the executive level of eBay. Is there kind of a a deep interest on behalf of eBay's executive team right now to keep this at arms length and keep it from ever coming to pass? This tends to be a problem of public companies and this is why private equity firms exist and this is literally the rationale for why private equity firms come in and do turnarounds because when you have a public company public companies seek to deliver the status quo. Like you are not rewarded for big improvements. You are rewarded for playing it safe. You want to meet expectations. If you need to take on a tremendous amount of risk to beat expectations like no no no because you might miss them. This is why private equity firms do what they do. And this is >> so why isn't a private equity firm making a bid for eBay instead of games?

[00:16:36]>> I mean it's it's possible they might. I think that they still trade at too high of a multiple. So in an enterprise I evita basis they're trading around 17 times. So it's still hard to make the math work if you are buying a company for 17 times and levering it at like six to seven. Again I I I've said this before and and I do think maybe it's that TD Bank is looking at next year's IBA. So, okay, fine. It's seven times levered, not 10. I don't know. Do you know what I mean? But like, >> if you are levering at seven and you're worth 17, unless you are a SAS company, it's really hard for the math to work without significant growth. I'll put it that way. It's not a great LBO candidate. So, a private equity firm is going to come in and they're going to say, I need to be able to buy the business and then target a 20 to 25% IRRa. Whereas the argument with a strategic buyer is they're much more focused on earnings per share and increasing EPS. So it's less about IRRa and more about EPS accretion dilution.

[00:17:38]>> Um and so the way that a buyer views success is a little different.

[00:17:43]>> With that said, it is possible that maybe they could be a turnaround story that a private equity firm would come in. But the whole argument of like we're going to cut costs and the executive teams pay too much and that's the same argument that people have about public companies all the time and this is why private equity firms go in and they do those types of deals to like essentially cut costs. I mean synergies literally is the code word for we're going to have some layoffs and that is what private equity firms do. How do you grow ibida?

[00:18:08]You cut costs and in in a great world you are able to um increase revenue and have multiple expansion but private equity firms it is a cost cutting exercise typically. And then my last question, what do we make of the fact that Michael Bur apparently sold out of all his shares of GameStop?

[00:18:24]>> I find that interesting. I mean, I will say I don't know that this is necessarily a great deal for GameStop.

[00:18:31]They're the buyer, but they're the seller. They're buying at a premium, right? They'd be levered up the wazoo.

[00:18:35]It would be incredibly risky. And I will say people seem to be very obsessed with this Ryan Cohen guy. And one of the arguments I'd seen is that he has not taken a salary. He's doing this for free. And I was like, you and I haven't taken a salary. WE HAVE EQUITY OWNERSHIP. When you have equity ownership, you have an incentive to basically grow the business. We're not working for free. We can say we're working for free. We're not. We're working to build a business. So, >> he's not working for free. He's worth $5 billion. I think he wants this to be a massive success, but there's such an asymmetric payoff because he has $5 billion. Doesn't need more money.

[00:19:07]>> So, if you are a shareholder though and like you're I don't know, Michael Bur and you're trying to make a return. ARE YOU >> WE'RE NOT A MICHAEL Bur like an every man on, you know, in our comments. Yeah.

[00:19:17]>> Yes. I think it's a lot ticket. And you know, they like recently did a change in the lottery where your odds of of winning are lower, but it also means that the prizes are higher.

[00:19:26]>> Oh, I didn't.

[00:19:27]>> Like it's harder to win. Yeah. They made a change where it's harder to win, but what then happens is because it's harder to win, the pile keeps growing. So then the pay everyone sees, oh my god, there's a $20 payout.

[00:19:36]>> Million dollar. Yeah. Exactly. That makes sense. So it's kind of like that same thing where it's like, okay, it was a meme stock. and my chance of reward was this and now it's a meme stock and like holy the risk just went up even more. I don't know in general, >> right? Yeah. The buyers um equity investors in the buyer usually hate it because in general acquisitions tend to destroy value. Whenever you see there is a takeover offer, the buyer if it's a if it's a stock deal, the share price goes down because again you are offering that control premium. In theory, you justify it with the synergies. The a premium you were paid is paid today and the synergies are theoretical. I've seen the strategic arguments. I hear people talk about collectibles. I my kids love Pokemon cards. My kids love Loos. I'm sure there's like some good rationale there. I could get on board with this. I think my biggest issue is if you're an eBay shareholder, why are you risking yourself up so much? Um >> my general approach to acquiring things is to not wish to do so. I am constantly in like get clutter out of my house.

[00:20:36]There are very few heirlooms that I want to hold on to over time. Like I think if you talk to any millennial, we're all scarred by the hoarding tendencies of the generations prior to ours coming out of the Great Depression, etc., etc. We could do an entire episode alone on, I think, the unwanted furniture/ heirlooms slash silver being passed down from generation to generation that nobody wants anymore. Um, so the idea that like the collectibles business is going to boom, I can see the idea that this is like the anti-NFT trade, if you will, that like, okay, physical objects in the real world all of a sudden explode in value because all of our online personas and experiences have been reduced to nothingness and worthlessness and everyone wants to like touch and feel and experience real things. That being said, I mean, Facebook Marketplace exists. I don't use any of these things.

[00:21:29]I've never bought or sold anything on eBay and never intend to. Um, so if anything to me, GameStop seems like the better business model because my kids play video games. But what do I know, right? I mean, I think that the the risk you run is it's almost like when Elon Musk bought Twitter because of almost the politicization, it did turn off a population of people that I think were not great for business. And so ultimately when it goes >> Oh, you mean like the advertisers pulling out of Twitter?

[00:22:01]>> But it's not just the advertisers. It's the number of users. We talked about this like kind of in a snarky way, but there's a reason that XAI bought X and they bought it at a valuation that was the same despite the fact that it had been marked down significantly. Anyway, I'm just trying to say because of kind of the baggage that comes with this GameStop memetop thing. And I mean, we get all the like trolls all the time.

[00:22:20]But the number of people who are like, "You're a woman. This is so funny hearing you talk finance. Like you need an education." And I'm like, "Yeah, Jen with her Princeton degree." I mean, I think we're I think we're okay.

[00:22:29]>> Out of the airlines, by the way, >> I I have never seen such an impassioned social media community other than when you were discussing what was going on with the uh United Airlines potential drama a couple of weeks ago. There are just a couple of company names, you know, sectors, whatever it is that people feel very deeply passionate about. I admire that passion for sure.

[00:22:56]But uh I mean we could be talking about a widget company here. For us, the fact that it's GameStop and the fact that it's eBay and the fact that it's all this drama in the press just gives us a little more nonsense to talk about. But at the end of the day, M&A math is M&A math.

[00:23:08]>> Well, I mean, to your point, I don't care if it's a widget company. We talked about this with Weiwork. We talked about this with UMG. Anytime there's sort of a funky deal going on, we're going to talk about it. But the amount of anger about something that you're like, "Guys, like I I don't know what to tell you. THIS ISN'T LIKE LIFE.

[00:23:23]>> WELL, I LOVE an underdog story. This doesn't feel like an underdog story to me. Like a guy who's worth $5 billion.

[00:23:28]I'm sorry. Like, you're not an underdog.

[00:23:31]>> Fine, >> right? You're fine. But >> you're fine.

[00:23:33]>> Yeah. So, I love We'd love to have you on the podcast, Mr. Cohen, if you ever want to come with us.

[00:23:38]>> I mean, honestly, I will say I had said before, I was like, I think it's interesting that nobody has done this after we talked with the spark. I was like, it's interesting that someone hasn't tried this. So, the fact that now that's what's being done here, I mean, HONESTLY, BUT IT DOES SEEM STRANGE. It's like here I would like to merge with you where you buy me but I pay you the premium. That's why I was like if you're an eBay shareholder and it's done you love to take me out to dinner like >> Yeah. Yeah. Take me out to dinner.

[00:24:03]Exactly. It's like the alternative would be eBay would have to buy GameStop at a premium. So I think there is merit to potentially considering this not in the current format because the leverage I think to me if you are an eBay shareholder the risk that you're going to basically go bankr like it's it's not like a little bit of an increased risk like it's pretty significant. All right, guys. Well, Kristen, thank you so much for sharing your knowledge and expertise with a dummy like me. We will be back with more updates on this and other deals in the news. Uh, please like and subscribe. We are the Wall Street skinny. You can find us on Instagram, YouTube, Tik Tok, LinkedIn.

[00:24:35]>> Substack. Yes, exactly. We've got a great Substack article coming out for you within the next 24 hours about not this, and there will be more to follow.

[00:24:43]It's about to end.

[00:24:44]>> As always, if you want to be an M&A expert like Kristen, we have best-in-class self-paced courses where you can learn to do so. We'll see you guys next time. Awesome. Bye, guys.