Chapter 1: What is the main topic discussed in this episode?
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GameStop, the meme stock that listeners will remember was destined to go to the moon, has decided to stay on Earth instead, where it will attempt to buy a much larger company, eBay. Today on the show, can the mouse eat the lion? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from an unseasonably chilly New York City.
And joining me in the studio is the head of the FT's Lex column, John Foley. Hi, John.
I'm here to announce that Lex is performing a hostile takeover of Unhedged. Oh, man.
I'm calling my lawyer. I don't think I want that.
No.
My initial temptation on hearing that GameStop, which we last heard of when it was chased to unrealistic highs by adrenaline addled retail investors, is trying to buy mighty eBay was to dismiss it as a gag that would soon go away. But you've written that maybe this is something that deserves to be taken seriously. Can you walk us through that?
Well, for full disclosure, I always like it when people in finance try and do silly things.
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Chapter 2: What is GameStop's plan to acquire eBay?
Yeah. I will admit, also, second piece of full disclosure is that I haven't actually used eBay in about 15 years, but the share price has been rocketing. It's about 50% in a year.
I have a disclosure to make, too, which is that this pair of shoes, which I am showing to John right now... From eBay. ...are from eBay. These are a pair of wingtips. That are from back when Alden and Brooks Brothers made shoes together. This is a prized item. They're a kind of burgundy color. I got a great price.
I wonder who owned them before, though. I don't know. Do you not find yourself every day wondering who walked in those shoes? They're like a dead guy's shoes and his ghost is following me around.
Did they die in the shoes? They were stolen off a corpse after a shootout.
So, right, GameStop wants to buy eBay. It's an unsolicited offer. The CEO of GameStop is this guy called Ryan Cohen, who is a sort of like an icon in the meme stock world. But he's very, very hostile towards traditional corporate governance and big, you know, America Inc., So he's launched this – there's something very – he's kind of trolling eBay at the same time as trying to buy it.
He's just gone out with it in public, said, here's what I want. If you're not interested, eBay board, I'm going to try and do it anyway by going hostile. It's fascinating.
So is it a massive PR stunt? Or do you think he means it?
Well, GameStop was once a chain of video game stores. And it still is kind of, but it's a much shrunken version of that. What it really is now is a pile of cash. So Cohen has been using the meme stockiness of it to issue convertible bonds and raise cash. So he now has about $9.5 billion of cash. And the idea is that at some point he would invest it in something that would make lots of money.
And by the way, I've often said this about... The meme stocks. Like, if the market, for reasons unknown, decides to massively overvalue your shares, for goodness sake, sell the market more of the shares. Yeah, which they did. That's exactly what they did. That is the rational thing to do. That is the best thing you can do for shareholders.
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Chapter 3: How does Ryan Cohen's leadership influence GameStop's strategy?
Exactly. And maybe not five times net debt to EBITDA, which is a lot of debt. So the question for GameStop would be, can you bring down that debt very quickly? And of course, because the guy who runs this company has boundless self-belief, he thinks that he can cut costs, grow the company, pay down the debt in no time.
You and I have both... listen to many promises in our career as financial journalists about cost-cutting campaigns. And especially after mergers, they do disappoint probably a bit more than they appear in my experience.
I can think of examples of companies that have cut costs very effectively, especially in industries like consumer goods. It's actually not that hard to cut costs, and often you end up with cutting more costs than you thought you would. Banks also, that's the case.
But in this situation, but obviously that doesn't always happen and you can still get a company that ends up being worth less because it's just harder to run. Yes. But I think in this case, there isn't obviously much overlap. This is this guy, Ryan Cohen, saying, I'd be better at running this business than...
I will cut costs because they're just not very good at managing the business efficiently, which is why the other way to think about this is that this is an attempt by Ryan Cohen to insert himself as the CEO of eBay through a sort of convoluted version of a takeover.
So eBay shareholders are basically going to be asking themselves, do we want a different CEO and do we want that CEO to be this guy who runs GameStop? And what is your answer? Well, he has to. So right now they've said no. And I can see why. If his challenge is now to prove or convince them that he has a plan and would be really good at creating value and cutting costs.
And if he is, then actually the maths of the deal look pretty good. could look pretty good for eBay. eBay is going to get a premium. Even if he doesn't manage to cut any costs, on paper, he would be paying eBay shareholders about $3 or $4 billion for the privilege of becoming CEO of the company.
But that all reappears as debt. In a more rational world, wouldn't it go like this? eBay looks at this offer and says, hmm, this is a good idea. Here's what we're going to do. We're going to buy GameStop using our shares as currency and our balance sheet as a more solid balance sheet on which to borrow. And that might save a lot of trouble.
Totally. I mean, you'd end up with similar results. The problem there as an eBay shareholder is that you would be paying the premium. You'd have less leverage, but you'd be paying. I think that's called a Pac-Man defense, is it?
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Chapter 4: What financial strategies is GameStop using for the acquisition?
Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Greta Cohn, and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Rob Armstrong. Thanks for listening.