Chapter 1: What is the main topic discussed in this episode?
Today's number? One million. That's how many bees escaped a beekeeper's truck after it crashed on the interstate highway in Knoxville, Tennessee last week. According to transportation officials, local traffic was already congested, so this one will really sting. Money market's bad. If money is evil, then that building is hell.
The show goes on! The folks in there are watching. Show! Show!
Welcome to Profiteer Markets. I'm Ed Elson, kicking off with a terrible joke to start the week. It is May 5th. Let's check in on yesterday's market vitals. The major indices all fell as tensions continued to escalate in the Strait of Hormuz. The US and Iran exchanged fire as the US escorted two ships through the strait.
That news sent Brent crude sharply higher, and the yield on 10-year treasuries climbed on the prospect of higher for longer energy prices. Meanwhile, logistics companies fell after Amazon announced it was launching its own supply chain services. FedEx fell 9%, while UPS dropped 10%. Okay, what else is happening?
GameStop has offered to acquire eBay, a company four times its size, for $56 billion. CEO Ryan Cohen says the goal is to build a real competitor to Amazon. But the big question is, how does GameStop plan to pay for this? The company has around $9 billion in cash and claims TD Bank will provide $20 billion in debt financing. Cohen says the rest of the money will come from GameStop stock.
Despite the fact that the company is worth less than $11 billion, GameStop fell 10% on the news while eBay gained 5%. So a lot of questions here. It is striking that GameStop is deciding to buy eBay and it is more striking how much larger eBay is as a company. So here to discuss this acquisition, we are speaking with our friend Rohan Goswami, business reporter at Semaphore.
Rohan, great to have you on the show. So... GameStop wants to buy eBay. It's four times the size. Just take us through how this can make sense, because it's something that's kind of confusing when we think about corporate M&A. How does this actually work?
Yeah, so GameStop has an enterprise value that's the market cap plus debt of around $14 billion, and eBay's, as you said, is around $55 billion. It's a much bigger company. And so there are two ways that Ryan Cohen, who of course is the chairman of GameStop, the CEO of GameStop, and also GameStop's largest shareholder, There are a few ways that he's proposing to do this, right?
So half of that deal, he says, as you pointed out, would come from about $9.5 billion of GameStop's cash on hand, another $20 billion in what financiers call highly confident financing. That's TD Bank. His bankers haven't actually raised the money, but they feel, quote, unquote, highly confident that they can raise that money. There is like a beautiful poeticism to this deal happening right now.
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Chapter 2: Can GameStop afford to buy eBay for $56 billion?
And then the cash that gets you to 20, you have this letter from TD. That's another 20. We're now at 40, but we're still off by, call it 16. And the 20, as far as I understand, while it's considered a highly confident letter, meaning TD's saying they're highly confident that they would provide the financing, it's not locked financing. Yeah, we'll see what happens. I hear you. I understand that.
I'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 to the price that you're offering. So that's a pretty straightforward question.
I don't get it. Where's the rest of the money coming from? Andrew laid it out pretty clearly. I don't understand your question.
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Chapter 3: What financing options does GameStop have for the eBay acquisition?
We're offering half cash, half stock, and we have the ability to issue stock in order to get the deal done.
So, I mean, there's so much to unpack in this moment. Oh, yeah. I mean, at first it seems as though maybe he's just confused about what they're actually asking him, but then he seems to kind of, like, admit... The thing that I guess he doesn't want to say, which is that they have to issue new stock, i.e. dilute the shareholders. I mean, what do you make of this?
Yeah, he's got two problems here. One, he doesn't want his retail shareholders to hear the word dilution because that's a scary word and it's not a great word. And two, he knows on some base level, I mean, he's an incredibly brilliant guy and he's a great businessman.
He knows that eBay's existing shareholders are going to go, well, why do we want to trade our eBay stock, which just hit all-time highs, for potentially worthless GameStop shares that, you know, you could dump out of, retail could dump out of, that we don't really have any certainty in because we're hitching ourselves to this really unknown and still somewhat scary shareholder base.
That's problem number one. Problem number two is, look, Andrew's a former colleague. He's one of the best interviewers of all time.
Generally, when you have the opportunity to make your case to the market and you're given 25 minutes on CNBC to talk about your long shot case, your response isn't, well, I don't know, and this wasn't in the clip, but look at our website and, you know, you're preying on our downfall. Yeah. But I think that's part, look, I spent a lot of this morning and this afternoon
talking to advisors on both sides of the aisle here, whether that's the GameStop side or the eBay side. I talked to folks who've known Ryan for a long time. I talked to institutional shareholders, trying to get a sense of what the market thinks. And there was a perception, a very real perception, reaffirmed by this CNBC interview that Ryan is a little bitter
about the way that CNBC and the legacy press treated him in the 2021-2022 run-up where GameStop was on top of the world, where it was the meme-stop frenzy, and where he felt fairly unfairly, like Andrew Ross Sorkin and folks at CNBC, had a target on his back and were kind of out to get him. And you could see that shine through in the passive-aggressive nature of the interviewer.
The problem, as we sort of talked about just now, is it doesn't really matter what Ryan Cohen thinks. It doesn't matter what his retail shareholder thinks. It doesn't, as much as I respect Andrew, matter what Andrew Ross Sorkin thinks.
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