Gamestop is attempting to purchase Ebay despite doubtful funds
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What is the main topic discussed in this episode?
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Time for our daily tech and business report. Today, we're joined by Bloomberg's Aaron Wyman. GameStop wants to buy eBay using a huge amount of borrowed money, but some analysts are skeptical of the math. Financing provided by TD Bank is dependent on the potentially merged company getting a strong credit rating. But the deal would create so much debt that that seems like a long shot. So, Aaron, explain this to us. The price tag is $56 billion. There is a proposed $20 billion in financing, right?
Yes, that's correct. Hi, Holly. Thanks for having me. So what GameStop or Ryan Cohen has obtained is, as you're probably already aware, what's known as a highly confident letter. So this is basically, for lack of a better word, an informal letter. means to obtain or promise to obtain financing to support its bid. Why this matters is it's not the same as regular way acquisition financings. Usually a bank will provide committed debt or committed financing, which provides more surety to the acquisition. Whereas in this case, it's just an informal letter It's like effectively riding on the back of a napkin, right? To say, hey, no worries, we got you back. Just get the deal done. If you can obtain certain parameters, in this case, it would be eBay being an investment, remaining, I should say, an investment-grade company after the bid is submitted.
But that's where the market is kind of pouring a bit of cold water on at the moment. The ability to maintain that kind of credit rating because... the debt would increase quite significantly and therefore not fit the parameters of what's called investment grade or blue chip, which eBay currently is.
So how reliable are those napkin deals? I mean, do they have to prove that, yeah, we can make this work? And is it a matter of whether or not investors are going to buy it or believe them?
How reliable is it? Well, look, I mean, TD Bank, which the lender that has provided this letter, is a very reliable financier. It's shown time and time again that it's able to finance very large acquisitions. I think what's not reliable here is GameStop's credit sort of rating just doesn't fit the package that's needed to support a bid for a than what GameStop is, and that's the major sticking point, right? And then you've also got to factor in eBay's existing bondholders. Their existing bondholders, they need to basically be on board with a transaction like this, and if it cannot obtain blue chip ratings, then that could mean they need to get paid out for their debt, right? So there's a lot of different factors at play here that are...
causing folks in the marketplace or analysts to pour, as I said, pour cold water on the possibility of a deal here.
How long could this hiccup delay proceedings?
Oh, wow. To be honest with you, I don't know the answer to that question, how long it could be.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–6:05
2
What is the GameStop‑eBay acquisition proposal and its headline price?
6:05–6:19
3
How does the proposed $20 billion financing from TD Bank work?
6:19–6:32
4
Why is the financing called a “highly confident letter” and not a committed loan?
6:32–6:50
5
What are the credit‑rating risks for a merged GameStop‑eBay company?
6:50–7:03
6
How could existing eBay bondholders affect the deal’s feasibility?
7:03–7:13
7
What timeline pressures are analysts placing on the transaction?
7:13–7:18
8
What must Ryan Cohen clarify to make the acquisition realistic?
7:18–7:23
Speakers
1 identifiedMore from KCBS Bloomberg Tech and Business Report
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