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Chapter 1: What is the main topic discussed in this episode?
You can forget earnings season. It's suddenly takeover season. You're listening to Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm John Quast, and I'm joined by Fool contributors Rachel Warren, and filling in for us today is Travis Hoyum. Today we have a show that is going to center around mergers and acquisitions.
Even though we're in the throes of earnings season, but the weekend news flow about acquisitions was just too juicy to pass up. We're going to try to be true to our hidden gems theme here. We're going to try to look at some hidden things that might make a
acquisition better than others make it break it you know but let's start with the lead here and it's the big headline over the weekend and that's that gamestop is entering the conversation right let me frame this back in january gamestop ceo ryan cohen said he was looking for an acquisition And he said the acquisition needed to be big. In fact, he said it needed to be very, very, very big.
He was looking for a resilient business. He was looking for an undervalued, publicly traded company and specifically looking for sleepy management, in his words. And now we know what the company is. They are targeting eBay. So over the weekend, GameStop A company with a market cap of about $11 billion offered to acquire eBay for nearly $56 billion. And it's a complete takeover.
Ryan Cohen is proposing himself as the new CEO of the combined company. And it's just a crazy deal. Have we ever seen anything like this? And is it even possible?
Yeah, I mean, there's definitely historical precedent for this. I mean, you have a famous example back in the 1980s, right, with Capital Cities. They're a relatively small media company. They acquired ABC. That was a company that was nearly four times its size at the time. And of course, back then, that deal was very much financed by famous investor Warren Buffett, Oracle of Omaha himself.
He provided about $500 million in exchange for up to a 25% share in the combined company. And that deal was one of many, I think, that proved that you could have a smaller, more aggressive firm swallow a corporate giant if they had the right financial backing. Now, you talk about this GameStop and eBay proposed deal to fund the cash portion of this deal.
Ryan Cohen, he secured a $20 billion debt financing commitment from TD Securities. That's the investment banking arm of TD Bank. And the idea is this would act as a bridge between GameStop's existing cash pile and the total offer. It's a risky maneuver.
GameStop's offered $125 a share in a 50-50 cash and stock deal that actually represented about a 20% premium over eBay's Friday share price close. But I think you also see a situation where Cohen has to convince the market that this combined entity would be more valuable than the two companies standalone.
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Chapter 2: What is the significance of GameStop's proposed acquisition of eBay?
And if the board were to refuse the offer, if the board of eBay refuses the offer, I think maybe the only path forward is some kind of a hostile proxy fight. So this will be really interesting to see play out.
Yeah, it's definitely happened before. This isn't completely new. We could go back to Norwest buying Wells Fargo in 1988, essentially just took over the name Wells Fargo. Kmart bought Sears. Remember that was when Eddie Lampert kind of made his name known. Don't know that that's necessarily worked out over the past 20 years or so. Yeah, I don't know if GameStop wants to be Kmart.
Yeah, that's not necessarily a great omen for them. I've been following gaming for 20 years. And Eldorado, which was a company that most of us had never heard of a couple of years before that, bought Caesars Entertainment. So this has happened before. It is kind of a situation where GameStop's got to figure out where in the world they go next. Their business isn't exactly doing great.
So might as well buy something. And I guess eBay's for sale.
And I feel like it's worth pointing out here that GameStop has quietly acquired a 5% stake in eBay, according to Cohen. Now, this is not pure shares here. There's some derivatives involved here, but it's essentially following the same playbook that Cohen ran. If you remember, Cohen is not the founder of GameStop. He's not the longtime executive.
He actually acquired enough of the company to essentially take it over a couple of years ago, put himself in the CEO chair. And it's worth pointing out that his pay package, is tied to GameStop's market cap reaching $100 billion. It's not tied to an operating metric. It is tied to the market cap of the company. So certainly incentive here to grow the business.
Yeah, that incentive structure is an interesting one to note. I mean, you look back, right? I mean, Cohen used this very methodical multi-step campaign to gain control of GameStop. He began with a 9% stake that he boosted eventually to 13%. And he used his position, you know, back in the day, he penned this blistering public letter to the board. He was criticizing their lack of vision.
He labeled them as outdated. He sort of pressured and forced the company to give him three board seats. And, you know, obviously GameStop has seen some significant turnaround under his leadership. But once he was inside the boardroom, he pushed out the legacy seat. Oh, he was very successful to that end.
Now, his current move on eBay follows something of a similar pattern, but the scale of the target is really different here, right? I mean, you had GameStop, very much a struggling retailer that he could fix with a few hundred million dollars injected into the business. eBay is this established
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Chapter 3: What historical precedents exist for smaller companies acquiring larger ones?
It's really more meme or story driven. And that's something he's got a lot of work to convince people that he's going to be able to build a hundred billion dollar business.
I think in fairness, you're talking about the top line. GameStop is certainly still struggling there. And there is questions on the long-term viability of that business, given all the changes that is happening in the gaming space, a lot more not a physical product anymore. And so that is certainly playing into it. But you do have...
under Cohen's leadership, going from losses to net income, trailing 12 month of 400 million. And to that point, definitely to Rachel's point of blistering letters, writing here that basically he can increase eBay's earnings per share 80% in the first year by cutting waste. Travis, do you think that he has a point here?
There's maybe a little bit of a point, you know, but at the end of the day, yes, you're right. GameStop is probably a more efficiently run company today. They are making an operating profit. They do have a little bit of operating leverage. But how valuable is operating leverage when your top line is still in decline, when you're still fundamentally not in a growth business long term?
I think that's really the challenge. Is this going to be a cigarette butt company? If we go back to the old Warren Buffett days, hey, there's still a little bit of cash flow to generate here, and we're just going to suck everything we can out of it and then let the business die.
I don't think that's the story that he's trying to give to the market, but that's what you get if you have declining revenue business and increasing operating profit. You're getting operating leverage at the cost of actually growing the business. So it's a little bit of a tough position for them to be in.
I just want to acknowledge one thing as we close this segment. I feel like this is that domino meme. If you've seen the little tiny domino and it finally knocks over a huge domino, it is just crazy to me that if we rewind the clock, it all started with a guy named Roaring Kitty on Reddit saying that he liked the stock. Next thing you know, you have
the co-founder of Chewy, buying GameStop, and now we have a potential takeover of the 10th largest e-commerce platform in the world. You never know what one little domino is going to knock over. We'll keep an eye on this because this is potentially something that would disrupt the e-commerce space, so we'll just keep an eye on it.
After the break, we are talking about another potential acquisition from AI giant Anthropic. You're listening to Motley Fool Hidden Gems Investing. Welcome back to Motley Fool Hidden Gems Investing. On this second segment, I want to be extremely clear up front. We are about to talk about a rumor. In our last segment, we talked about a real proposal. You can go to GameStop's website.
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Chapter 4: How does Ryan Cohen plan to finance the eBay acquisition?
You can read the documents, see the numbers. That proposal is real. This segment, we are talking about a rumor that is floating around out there, but it is so fascinating that I really feel like we need to touch it. And here's the rumor. The rumor is that AI giant Anthropic, the maker of Claude, is interested in acquiring enterprise software company Atlassian.
Now, what's fascinating about this rumor to me is that we've been talking about how AI is going to kill software, or at least that's the prevailing narrative. But if this rumor is true, then somehow an AI company would want to buy a downtrodden software company. In light of that narrative, I mean, how possible do you think it is that this is true, Travis?
It's very possible that it's true. And we got to think about this strategically first. If you are anthropic, you're dealing with a competitive market in the model space. We know that they were the hottest thing in the market in early 2026. It seems like even just over the past few weeks, they've kind of been overtaken again by Codex from OpenAI. So in this kind of back and forth market
How do you build a durable business that's actually going to be worth the however many hundreds of billions or trillions of dollars these companies think they're going to IPO for at some point in the near future? And one of the ways that you're going to do that is you're going to get distribution and data within your ecosystem. Atlassian has distribution. They have products.
They have data that companies put into Atlassian's products. That's going to create something of a flywheel for Anthropic, potentially, if they bought this company. And it would make them a little bit stickier in some of the enterprise businesses. And I think the interesting thing here, we saw the deal between XAI and Cursor a week or two ago.
So that was Cursor proposed being acquired by XAI, SpaceX, whatever it's going to be after they actually go public. And I think the idea there was Cursor was actually in a fairly weak strategic position because they were being replaced by Claude and Codex actually kind of pulling their customers away from Cursor as the place that they were actually doing their coding.
So things are changing so quickly in artificial intelligence that even though Anthropic and Claude are arguably one of the fastest growing companies we've ever seen at this scale, it is still a tenuous position. They don't have a huge moat around the business. And this would potentially start to build that moat. I think that's the way to think about it.
Okay, and so basically what you're saying here is that perhaps Claude could build better products, but the real deal here is that Atlassian has customers that it already has in the hopper. It's got this huge distribution, and that would be the competitive advantage if it could get its hand on that. That's one thing it doesn't have.
Rachel, do you think that Anthropix Claude could make Atlassian's products better?
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