Latest / Elon Musk Podcast / GameStop’s hostile $55 billion eBay bid

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GameStop’s hostile $55 billion eBay bid · Elon Musk Podcast

• 0:00
  Ryan Cohen, the CEO of GameStop, has launched A hostile $55.5
• 0:04
  billion takeover bid for eBay. He is targeting a company 4
• 0:09
  times GameStop size, and to help fund the deal he is currently
• 0:12
  selling his own used tube socks and office signs directly on
• 0:16
  ebay's platform. I mean, the math there is just
• 0:19
  incredibly difficult to process when you really put those two
• 0:21
  entities side by side. GameStop has a market
• 0:24
  capitalization of around $11 billion, right?
• 0:27
  And eBay is sitting right around $50 billion.
• 0:30
  So you have this very traditional physical video game
• 0:33
  retailer attempting to swallow a foundational global e-commerce
• 0:36
  company. It it really looks like a
• 0:39
  financial optical illusion. Yeah, it completely does.
• 0:41
  There is this immediate structural tension, too, because
• 0:44
  you have a highly profitable, established tech entity being
• 0:47
  hunted by a retail company that is, you know, primarily famous
• 0:50
  for its mobilized retail investor base.
• 0:52
  And that is really the central question we are looking at
• 0:55
  today. We have a massive stack of
• 0:57
  financial filings, analyst notes, public statements to go
• 1:00
  through. The objective for you to
• 1:02
  consider is just how a much smaller company actually
• 1:04
  engineers a hostile takeover of a corporate giant, and whether
• 1:08
  the financial mechanics behind this highly specific offer could
• 1:12
  even work. Well, the structure of the
• 1:13
  proposal is really where all that friction starts.
• 1:15
  You have to look at how GameStop is actually trying to, you know,
• 1:19
  pay for this. Thing, right.
• 1:20
  So the offer itself is $125 per share.
• 1:23
  That represents a 46% premium over ebay's unaffected stock
• 1:28
  price right before the accumulation began.
• 1:30
  Which is a huge premium. It is, yeah.
• 1:32
  In mergers and acquisitions, a premium of that size is standard
• 1:35
  to compel existing shareholders to sell.
• 1:38
  But the consideration here is structured as an even 5050
• 1:41
  split. GameStop is offering $27.75
• 1:44
  billion in cash and $27.75 billion in GameStop stock.
• 1:49
  OK. So to fund the cash portion,
• 1:52
  GameStop plans to use its nine point $4 billion cash reserve
• 1:55
  combined with a $20 billion commitment letter they got from
• 1:58
  TD Securities. Right, but there is a severe
• 2:00
  mathematical problem right there.
• 2:02
  You have a $16 billion shortfall in that stock equation.
• 2:06
  If GameStop as an entire entity is only worth around $11
• 2:10
  billion, issuing enough stock to cover that remaining $27.75
• 2:16
  billion without completely crushing their own share price
• 2:20
  seems mechanically impossible. You cannot just print equity out
• 2:25
  of thin air without heavily diluting the existing pool.
• 2:29
  I mean, if they simply issued $27 billion worth of new
• 2:32
  GameStop shares, the supply would just flood the market, the
• 2:35
  share price would plummet, and the actual value delivered to
• 2:38
  those eBay shareholders would be a fraction of what was actually
• 2:41
  promised on paper. Right.
• 2:42
  So the proposed solution to that massive shortfall is a structure
• 2:45
  called a 6040 equity rollover. This strategy completely changes
• 2:49
  the geometry of the deal. It means GameStop is not simply
• 2:52
  buying eBay and absorbing it as a subsidiary.
• 2:54
  They are merging the two companies into a completely new
• 2:57
  hybrid entity. Yeah, so under this structure,
• 3:00
  current eBay shareholders would receive their cash payout from
• 3:03
  the TD Securities loan and Gamestop's cash reserves.
• 3:07
  Then, instead of just receiving current GameStop shares, they
• 3:10
  would receive enough newly issued stock in the combined
• 3:13
  post merger company to effectively own 60% of it, and
• 3:18
  Gamestop's current shareholders would own the remaining 40%.
• 3:21
  See, that changes the nature of the entire proposition for the
• 3:24
  institutional holders. It is no longer just a simple
• 3:27
  buyout where they take their cash and walk away it.
• 3:29
  Forces those eBay shareholders to make a very specific choice.
• 3:34
  They have to decide if they want to trade their current stable
• 3:37
  stand alone stock for a partial cash payout today, plus a
• 3:40
  majority stake in this completely untested hybrid
• 3:44
  retail e-commerce company that is going to be run by Gamestop's
• 3:47
  management. Right?
• 3:48
  They are essentially being asked to finance their own acquisition
• 3:51
  using the equity of the company they already own.
• 3:53
  And pitching that kind of complex financial engineering
• 3:57
  requires airtight public messaging.
• 4:00
  I mean, you have to convince Vanguard, BlackRock, and all
• 4:03
  these other major institutional portfolio managers that this
• 4:06
  newly formed entity will somehow be more valuable than the eBay
• 4:11
  they currently hold. Which is a tough sell.
• 4:13
  Exactly that requires explaining the rollover mechanics Florida
• 4:17
  State. So we should probably look at
• 4:19
  how Cohen actually chose to explain this math to the
• 4:22
  financial world. Right, so Cohen made an
• 4:25
  appearance on CNBC Squawk Box to discuss the proposal, and the
• 4:28
  interview centered entirely on the exact shortfall you just
• 4:31
  mentioned. Of course it did.
• 4:33
  The anchors pressed him on the $16 billion funding gap, and
• 4:37
  they asked for a step by step explanation of how the stock
• 4:40
  issuance would mechanically work without diluting current
• 4:43
  shareholders down to 0. And what did he say?
• 4:45
  Cohen repeatedly stated I don't understand the question.
• 4:48
  You're kidding. No.
• 4:49
  He then deflected by telling the interviewers to check the
• 4:52
  company website for the details. He he totally refused to engage
• 4:55
  with the core financial mechanics of his own proposal on
• 4:58
  live television. You have to kind of question
• 5:00
  whether that was a genuine stumble or just a highly
• 5:03
  calculated evasion. How so?
• 5:05
  Well, Cohen is a very experienced founder.
• 5:07
  He built Chewy from absolutely nothing and sold it for over $3
• 5:11
  billion. He understands unity economics.
• 5:14
  He understands capital structure, equity dilution.
• 5:16
  He has navigated very complex term sheets before.
• 5:20
  So the idea that he just does not grasp the logistical funding
• 5:24
  gap of a $55 billion hostile takeover bid seems, frankly,
• 5:29
  highly improbable. Yeah, if that makes sense.
• 5:31
  It really suggests he was playing to a completely
• 5:33
  different audience. He might have been intentionally
• 5:36
  rejecting the very premise of traditional financial media to
• 5:40
  signal to his retail base that, you know, he just does not play
• 5:43
  by Wall Street's rules. He was certainly not playing to
• 5:45
  the traditional financial analysts, and the market reacted
• 5:48
  exactly how you would expect it to.
• 5:50
  The immediate real world consequence of that television
• 5:53
  appearance was a 10% slide in GameStop stock price.
• 5:56
  Naturally, because institutional capital demands clarity on
• 5:59
  leverage, and when the architect of the deal either cannot or
• 6:02
  will not explain that leverage, the capital just retreats.
• 6:05
  Traditional markets do not tolerate ambiguity at all when
• 6:09
  billions of dollars in new debt are involved.
• 6:11
  Exactly. Michael Bury, the investor who
• 6:14
  famously predicted the 2008 financial crisis, completely
• 6:18
  exited his GameStop position following the announcement of
• 6:21
  the bid and that subsequent interview.
• 6:24
  Bury explicitly warned that the deal would saddle GameStop with
• 6:27
  unmanageable debt and severely dilute share value.
• 6:31
  His parting comment was to never confused debt for creativity.
• 6:36
  He looked at the balance sheet and just determined the math was
• 6:38
  totally toxic. Well, Bury is looking at the
• 6:40
  credit risk there, which is really the fragile lynchpin of
• 6:43
  this entire operation. That $20 billion loan commitment
• 6:46
  from TD Securities is not a blank check.
• 6:49
  Investment banks do not hand over that kind of capital
• 6:52
  without very severe contingencies, right?
• 6:55
  And the primary contingency here requires the combined company to
• 6:59
  maintain an investment grade credit rating.
• 7:01
  And Moody's immediately labeled the proposed deal as credit
• 7:04
  negative for eBay. They pointed out that the
• 7:06
  combined debt of the two companies would rocket from
• 7:08
  roughly $7 billion to $31 billion.
• 7:12
  That is a staggering jump. It is.
• 7:14
  Corporate debt markets operate on strict rating scales.
• 7:18
  When a company takes on 20, $24 billion in new debt to finance
• 7:22
  and acquisition agencies like Moodys or Standard and Poors are
• 7:26
  going to reevaluate the companies ability to service the
• 7:29
  interest payments on that new debt.
• 7:31
  Right, because if you merge A shrinking physical retailer with
• 7:35
  an ecommerce platform and you quadruple the debt load, the
• 7:38
  credit rating agencies are obviously going to analyze those
• 7:41
  cash flow coverage ratios very aggressively.
• 7:44
  If they determine that the new company generates insufficient
• 7:47
  free cash flow to comfortably pay the interest, they will
• 7:49
  downgrade the debt. If the rating drops below
• 7:52
  investment grade and goes into high yield or junk territory,
• 7:56
  that TD Securities loan just vanishes.
• 8:00
  The bank simply pulls the commitment letter.
• 8:01
  And if the loan vanishes, the cash portion of the bid
• 8:04
  evaporates and the entire deal collapses.
• 8:06
  Exactly. It is a highly precarious
• 8:08
  financial tightrope. GameStop needs ebay's cash flow
• 8:12
  to justify the loan, but taking the loan to buy eBay might
• 8:15
  actually ruin the exact credit rating required to secure the
• 8:18
  loan in the first place. It's a catch 22.
• 8:20
  It really is. So while traditional investors
• 8:22
  like Bury ran for the exits after the interview, Cohen
• 8:26
  immediately pivoted to a highly unconventional tactic to
• 8:29
  maintain momentum and keep the narrative completely focused on
• 8:33
  his bid. Because traditional finance
• 8:36
  rejected his math, Cohen realized he had to wage a
• 8:38
  psychological war on the platform itself to rally his
• 8:42
  retail investors. So he basically moved from
• 8:44
  financial engineering to straight up platform disruption.
• 8:48
  Yes, Cohen began listing his personal items on eBay.
• 8:52
  He stated publicly that he was doing this to literally pay for
• 8:56
  eBay. That's hilarious.
• 8:57
  The listings were intentionally bizarre.
• 8:59
  They included vintage software, a painting of his dog store
• 9:02
  signs that very quickly reached a bidding price of $21,100 from
• 9:06
  retail supporters, and a pair of tube socks that were listed for
• 9:10
  $14,000. He was just using the platform's
• 9:12
  auction mechanics to generate viral content.
• 9:15
  And of course, that abnormal bidding activity on low value
• 9:17
  items triggered ebay's automatic fraud detection systems.
• 9:21
  His account was flagged and temporarily banned.
• 9:23
  I mean, the system operated exactly as it was programmed to
• 9:26
  do when it sees a pair of used socks suddenly hit $14,000.
• 9:31
  But the irony of an e-commerce platform suspending the account
• 9:34
  of the person actively trying to purchase the entire company is
• 9:37
  striking, and Cohen immediately leveraged that suspension.
• 9:41
  He posted screenshots of his banned social media, using it to
• 9:44
  highlight his core narrative. Right, playing the victim a bit.
• 9:47
  Exactly. He argued that the ban was proof
• 9:49
  that eBay is a decaying company plagued by arbitrary rules,
• 9:54
  broken automated systems, and just a lack of common sense.
• 9:58
  He basically framed a standard fraud protection protocol as
• 10:01
  evidence of corporate incompetence.
• 10:03
  He is building a public case against the current management.
• 10:07
  It is a completely manufactured crisis designed to prove a point
• 10:10
  to his followers. And he followed that up with a
• 10:13
  quote describing eBay as a business that needs to be on
• 10:16
  Ozempic. He compared the company to an
• 10:19
  obese patient about to have a heart attack due to bloated
• 10:21
  overhead and corporate inefficiency.
• 10:24
  He was directly attacking the organizational structure of the
• 10:27
  company, suggesting it was slow, heavy and dying from its own
• 10:31
  excess. I mean, this alters the standard
• 10:33
  mergers and acquisitions playbook entirely.
• 10:36
  Usually hostile takeovers are fought with very sterile press
• 10:40
  releases, letters to shareholders drafted by white
• 10:44
  shoe corporate lawyers, and these very quiet closed door
• 10:47
  meetings with proxy advisory firms like ISS or Glass Lewis.
• 10:51
  You hire bankers to argue over discounted cash flow models.
• 10:54
  Right, the traditional route. Yeah, but instead of doing that,
• 10:57
  Cohen is using social media theater.
• 10:59
  He's keeping his base of retail investors highly engaged while
• 11:03
  publicly humiliating ebay's management in real time.
• 11:06
  He's essentially turned a $55 billion financial transaction
• 11:10
  into a localized Internet spectacle.
• 11:12
  He knows his retail base will amplify that Ozempic quote far
• 11:15
  more effectively than they would ever amplify white paper on
• 11:17
  synergy projections. And the theatrics really act as
• 11:20
  a smokescreen for a very specific operational vision.
• 11:24
  Behind the tube socks and the social media posts, Cohen has
• 11:28
  outlined exactly what he intends to do with ebay's physical and
• 11:31
  digital infrastructure. He actually has a plan for the
• 11:34
  integration. This is where we look at the
• 11:36
  physical mechanics of merging these two companies beyond just
• 11:38
  what the balance sheet says. Right.
• 11:40
  The physical strategy behind the merger relies on Gamestop's
• 11:43
  roughly 1600 brick and mortar retail locations across the
• 11:47
  United States. Cohen wants to convert these
• 11:49
  stores into a physical backbone for ebay's digital marketplace.
• 11:53
  He wants to merge the physical footprint with the digital
• 11:56
  platform. But there is a massive
• 11:58
  structural conflict in that premise. eBay is fundamentally
• 12:02
  an asset light company. They do not own warehouses, they
• 12:05
  do not hold inventory, and they definitely do not operate retail
• 12:08
  storefronts. Their margins are very high
• 12:11
  because they simply collect the fee for connecting a buyer and a
• 12:14
  seller over the Internet. GameStop is an asset heavy
• 12:17
  business. They signed commercial leases in
• 12:19
  strip malls, they buy wholesale inventory.
• 12:22
  They hold that inventory in centralized distribution
• 12:24
  centers, and they have to pay retail employees to stand at
• 12:27
  cash registers and sell it. Jamming an asset light software
• 12:31
  model together with an asset heavy physical retail model
• 12:34
  create severe integration friction.
• 12:36
  You were taking a company optimized for digital scale and
• 12:39
  anchoring it to 1600 commercial leases.
• 12:41
  Right, but Cohens argument is that ebays purely digital nature
• 12:45
  is actually its primary weakness in the modern ecommerce
• 12:48
  environment. He believes being asset light
• 12:51
  leaves you vulnerable to platforms that control the
• 12:53
  physical logistics, so he has detailed 3 core functions that
• 12:57
  GameStop stores would provide to solve ebay's current
• 13:00
  vulnerabilities. Will the authentication centers
• 13:02
  definitely address a real problem for eBay?
• 13:04
  Yeah, that is the first function employees in GameStop stores
• 13:08
  would act as local verifiers. They would authenticate high
• 13:11
  value items like trading cards, vintage video games, watches and
• 13:15
  sneakers right on the spot. Once verified by a human being
• 13:19
  in the store, the item would be issued a trust badge for its
• 13:21
  digital listing on eBay. Because eBay currently loses
• 13:25
  significant market share to specialized platforms like Stock
• 13:28
  X or GOAT. Because buyers are terrified of
• 13:32
  counterfeits. The counterfeit market for high
• 13:34
  end sneakers and trading cards is incredibly sophisticated
• 13:37
  right now. Yeah, it really is.
• 13:39
  If you buy a Rolex or a graded Charizard card on eBay from just
• 13:42
  a random seller, there is a massive trust deficit.
• 13:45
  You do not know if the item is real until it arrives at your
• 13:48
  house. eBay has tried to solve this with mail in authentication
• 13:52
  centers, but it adds days, sometimes weeks, to the shipping
• 13:55
  process. Having a physical location where
• 13:57
  a seller can just walk in, hand the item to a trained employee
• 14:01
  and have it instantly authenticated and secured
• 14:02
  removes that trust deficit completely.
• 14:04
  It bridges the gap between digital convenience and physical
• 14:07
  security. Exactly, and the second function
• 14:10
  is intake and fulfillment. The stores would act as local
• 14:14
  drop off points for consumer to consumer sellers.
• 14:17
  Instead of a casual seller printing a shipping label at
• 14:19
  home, finding a suitable box, packing the item, and driving to
• 14:23
  a post office or a shipping carrier, they can simply drop
• 14:26
  the raw item off at the local retail hub.
• 14:28
  That's interesting. The GameStop hub would then
• 14:30
  handle the packaging and batch ship the items to buyers,
• 14:33
  basically reducing the friction for the seller.
• 14:35
  It attempts to mirror the convenience of returning an
• 14:38
  Amazon package at a local Whole Foods or Kohl's, but applied to
• 14:42
  the outbound shipping process for individual sellers.
• 14:45
  The friction of logistics is the primary reason many people do
• 14:48
  not sell their used items online.
• 14:51
  They just do not want to deal with the post office.
• 14:53
  If Cohen can utilize existing retail space and existing
• 14:56
  employees to solve that first mile shipping problem for casual
• 14:59
  sellers, he unlocks a massive amount of dormant inventory.
• 15:03
  Right. And the third function is the
• 15:05
  creation of live commerce studios.
• 15:07
  The plan involves turning sections of the retail stores
• 15:10
  into broadcasting hubs for live streaming auctions.
• 15:13
  It is described as a hybrid of QVC and TikTok.
• 15:16
  Capitalizing on the trend of influencer driven live selling.
• 15:21
  GameStop stores would host streams where employees or local
• 15:24
  influencers auction off rare inventory in real time to the
• 15:27
  eBay user base. If you look at those three
• 15:30
  functions together, it really redefines ebay's capabilities.
• 15:33
  It targets their two biggest vulnerabilities, which are
• 15:36
  shipping logistics and counterfeit trust issues.
• 15:39
  And it does this by leveraging commercial real estate.
• 15:41
  The GameStop is already paying leases on the physical space is
• 15:44
  already a sunk cost. If they could actually execute
• 15:47
  that integration, train the employees to authenticate
• 15:50
  complex items and handle the logistics without bankrupting
• 15:53
  the company, it theoretically builds a direct, localized
• 15:56
  competitor to Amazon's fulfillment network.
• 15:59
  It takes Gamestop's biggest liability, which is having 1600
• 16:02
  physical stores in an increasingly digital world, and
• 16:05
  turns it into ebay's biggest asset.
• 16:07
  But executing an integration of that magnitude requires severe
• 16:10
  financial discipline. To make the math work on the
• 16:13
  debt they are taking on and to fund the transformation of these
• 16:16
  stores into logistics hubs, Cohen has outlined A brutal
• 16:19
  regimen of $2 billion in annualized cost cuts.
• 16:23
  He needs to extract cash from ebay's current operations to pay
• 16:27
  for his vision. And you do not find $2 billion
• 16:30
  in savings without dismantling large parts of the existing
• 16:33
  corporate structure. That is not trimming the edges,
• 16:37
  that is removing foundational support beams.
• 16:39
  Yeah. The projections breakdown the $2
• 16:41
  billion into specific categories.
• 16:43
  The plan calls for slashing a $1.2 billion in sales and
• 16:47
  marketing, cutting $300 million from product development, and
• 16:51
  reducing general and administrative costs by $500
• 16:53
  million. The marketing cut is the most
• 16:55
  aggressive piece of that strategy.
• 16:57
  Cutting $1.2 billion from sales and marketing in an e-commerce
• 17:01
  company is incredibly dangerous. eBay relies heavily on
• 17:04
  performance marketing, Google Adwords, affiliate networks and
• 17:08
  television spots to drive traffic to its sellers.
• 17:10
  If you turn off the marketing spend, the traffic drops.
• 17:14
  If the traffic drops, the sellers leave for Amazon or
• 17:16
  Shopify. Cohen is betting that the viral
• 17:19
  nature of the new physical hubs, combined with his own social
• 17:22
  media presence and organic retail foot traffic at GameStop
• 17:26
  stores, can somehow replace $1.2 billion of paid digital
• 17:31
  acquisition. It is a massive assumption about
• 17:34
  consumer behavior. Well, Cohen's justification for
• 17:36
  these cuts is deeply rooted in his stated ideology against
• 17:40
  traditional corporate management.
• 17:42
  He does not view these as necessary operational expenses.
• 17:45
  He views them as bloat. Interesting.
• 17:47
  He published a public manifesto criticizing what he calls the
• 17:50
  parasitic class of corporate bureaucrats running American
• 17:52
  companies. He specifically targeted ebay's
• 17:55
  chief executive officer Jamie Iannone, to illustrate his
• 17:58
  point. He pointed out the compensation
• 18:00
  discrepancy to frame the argument right.
• 18:02
  Yes, Cohen noted that iannone received $144 million in total
• 18:07
  compensation over his six year tenure, while the platform saw a
• 18:11
  gradual decline in total active users.
• 18:13
  Furthermore, Common highlighted a specific detail, which is that
• 18:16
  during their entire six year period, Iannone did not purchase
• 18:20
  a single share of eBay stock on the open market with his own
• 18:22
  money. All of his equity was granted as
• 18:25
  part of his compensation package.
• 18:27
  It is a classic missionary versus mercenary dynamic.
• 18:30
  Cohen is presenting himself as the missionary here.
• 18:33
  He takes zero salary as CEO of GameStop, he accepts no cash
• 18:37
  bonuses, and he has no golden parachute written to his
• 18:40
  contract. He even pays for his own
• 18:42
  personal assistant out of pocket and manages his own meeting
• 18:45
  schedule. His entire financial upside is
• 18:48
  tied directly to the value of the equity ONS.
• 18:50
  If the stock goes to zero, he loses everything.
• 18:53
  He has total skin in the game. He operates completely like an
• 18:56
  owner. And he contrasts that directly
• 18:57
  with the eBay board of directors and executive team.
• 19:00
  Right, because the eBay board collectively collects about $4
• 19:03
  million in fees annually while owning Just Point 7% of the
• 19:07
  total company. Cohen views them as mercenaries.
• 19:10
  They collect a risk free paycheck regardless of how the
• 19:13
  underlying business performs. If the stock drops 20%, the
• 19:17
  board members still collect their fees.
• 19:20
  Cohen's argument is that executives and board members who
• 19:22
  do not buy stock with their own money will always make decisions
• 19:25
  that protect their salaries, rather than decisions that
• 19:28
  maximize shareholder value. By framing it this way, Cohen
• 19:32
  completely changes the narrative of the takeover.
• 19:34
  It is no longer just a leveraged financial buyout of an
• 19:37
  e-commerce platform. He positions it as a broader
• 19:40
  crusade for corporate accountability.
• 19:42
  He is openly challenging institutional investors to
• 19:45
  evaluate their own priorities. That's a bold move.
• 19:47
  It is he is asking them to decide whether they prefer safe,
• 19:50
  highly compensated executives who manage the status quo and
• 19:53
  collect fees, or an aggressive equity aligned owner operator
• 19:57
  who is willing to take massive operational risks to drive
• 20:00
  growth. Well, nobody likes being called
• 20:02
  a parasite in public. The eBay board responded to the
• 20:05
  proposal and the rhetoric by pointing to their own very real
• 20:09
  financial successes. They firmly rejected the premise
• 20:12
  that the company is failing or in need of some rescue from
• 20:15
  GameStop. Yes, eBay Chairman Paul Pressler
• 20:18
  issued a formal response. He rejected the $55.5 billion
• 20:23
  offer outright, stating clearly that the proposal was neither
• 20:26
  credible nor attractive. That phrasing is standard
• 20:29
  corporate defense language. When a board calls an offer not
• 20:32
  credible, they are specifically attacking the financing gap we
• 20:35
  discussed earlier. They're telling the market that
• 20:38
  GameStop does not actually have the money to complete the
• 20:41
  transaction and the 6040 equity rollover is a mirage.
• 20:44
  And when they call it not attractive, they're just saying
• 20:47
  the $125 per share price is too low, even with the premium.
• 20:51
  The Board cited strong standalone prospects to justify
• 20:54
  their refusal to engage in negotiations.
• 20:56
  They highlighted their first quarter revenue of $3.1 billion,
• 21:00
  a user base of 136 million active buyers and a highly
• 21:03
  profitable non GAAP operating margin of 29.4%.
• 21:07
  I mean those are not the numbers of a dying company in need of a
• 21:11
  turn around. A 29% operating margin is
• 21:14
  exceptionally healthy for an established tech company.
• 21:17
  It means for every dollar of revenue they bring in, they keep
• 21:21
  nearly $0.30 in pure operating profit before taxes and
• 21:24
  interest. You do not achieve those margins
• 21:27
  if the business model is fundamentally broken.
• 21:29
  And ebay's current management is also already executing its own
• 21:33
  strategic pivot. They are not standing still
• 21:35
  waiting to be acquired, right. They are aggressively expanding
• 21:38
  AI powered card scanning technology to help sellers
• 21:41
  instantly price and list collectibles, which actually
• 21:44
  directly competes with Gamestop's physical
• 21:46
  authentication idea. Yeah, they have grown their
• 21:48
  first party advertising revenue by 33%, turning the platform
• 21:51
  itself into an ad network. They are also targeting younger
• 21:55
  demographics through the pending $1.2 billion acquisition of the
• 21:59
  fashion resale app Depop. The stock performance under the
• 22:02
  current management also really undercuts Cohen's narrative of
• 22:05
  total decay. While active users might have
• 22:08
  fluctuated, ebay's stock has surged dramatically, returning
• 22:12
  over 200% since Enon took the CEO position in 2020.
• 22:16
  They have delivered very real returns to the shareholders.
• 22:19
  Right. To bolster their defense against
• 22:21
  the hostile bid, eBay retained Joel Frank.
• 22:24
  That is a very significant move that signals how seriously they
• 22:28
  take the situation. Joel Frank is one of the top
• 22:30
  activism, defense and strategic communications firms in the
• 22:33
  country. When a company hires them, they
• 22:35
  are preparing for a war. Dole Frank specializes in
• 22:39
  implementing poison pills to prevent further stock
• 22:41
  accumulation, lobbying institutional shareholders to
• 22:44
  vote with management, and running aggressive public
• 22:47
  relations campaigns to discredit the activist investor it proves.
• 22:51
  That while eBay is publicly dismissing the bid as not
• 22:54
  credible and refusing to take a meeting with Cohen behind closed
• 22:56
  doors, they view him as a severe threat that requires top tier
• 23:00
  crisis management. They know his retail base is
• 23:03
  mobilized and highly unpredictable.
• 23:05
  The board's rejection sets up a complete stalemate. eBay firmly
• 23:10
  believes their current trajectory of steady growth,
• 23:12
  continued share repurchases and high operating margins is far
• 23:16
  superior to taking on $24 billion in new debt and handing
• 23:21
  control of a global tech platform over to a video game
• 23:24
  retailer with a fraction of their revenue.
• 23:26
  They just see no upside in the merger.
• 23:28
  But a board rejection is a roadblock, not a dead end.
• 23:32
  In the context of a hostile takeover because the board
• 23:35
  refused to negotiate, the conversation now moves to the
• 23:39
  aggressive legal and financial maneuvers required to bypass
• 23:42
  them entirely. GameStop has to go around the
• 23:44
  executive suite. This is where the actual
• 23:47
  mechanics of a hostile takeover happen.
• 23:49
  You have to appeal directly to the owners of the company.
• 23:51
  Right. GameStop has already accumulated
• 23:53
  a 5% economic stake in eBay. They did not do this by simply
• 23:57
  buying stock on the open market, which would have driven the
• 23:59
  price up and loaded the board. They utilized American style put
• 24:02
  and call options expiring in 2028 to build this position
• 24:06
  quietly. The use of options is a very
• 24:08
  specific tactic to avoid detection.
• 24:11
  The Securities and Exchange Commission requires any entity
• 24:14
  that acquires more than 5% of a public company's stock to file
• 24:18
  A13D disclosure, alerting the entire market to their position.
• 24:23
  However, by using American style options which give the holder
• 24:26
  the right to buy the stock at a certain price at any point
• 24:29
  before expiration, GameStop could secure the economic
• 24:32
  exposure of the shares without legally taking beneficial
• 24:36
  ownership of the stock itself. They essentially hid their
• 24:39
  accumulation in the derivatives market until they were
• 24:41
  completely ready to announce the bid.
• 24:43
  Exactly. And with the 5% stake secured
• 24:45
  and the board refusing to engage, Gamestop's next move is
• 24:49
  to file a schedule TO or tender offer with the SEC.
• 24:52
  The tender offer is the direct appeal.
• 24:54
  It bypasses the board completely and goes straight to the people
• 24:57
  who actually own the shares. GameStop is formally asking eBay
• 25:00
  shareholders to directly tender or sell their shares to GameStop
• 25:05
  for the proposed $125.00 package of cash and stock.
• 25:09
  To achieve control or plus the board and force the merger
• 25:12
  through, GameStop needs to secure exactly 50.001% of the
• 25:17
  voting shares. They just need a simple
• 25:19
  majority. You really have to question the
• 25:21
  feasibility of winning over the institutional giants that
• 25:24
  control the majority of those voting shares though.
• 25:27
  Retail investors do not own 50% of eBay firms like Vanguard,
• 25:31
  BlackRock and Speed St. on massive blocks of the company.
• 25:35
  You are asking conservative portfolio managers who
• 25:37
  prioritize stability and predictable cash flows to
• 25:40
  overthrow a profitable, established board and hand the
• 25:42
  keys to ACEO promising radical integration and massive cost
• 25:46
  cuts. Well, the financial incentive
• 25:48
  designed to persuade those institutional whales is found in
• 25:50
  the projected earnings per share.
• 25:52
  Cohen has to show them the math on how the new company makes
• 25:55
  them richer. He has to prove this energy.
• 25:57
  Gamestop's internal projections suggest that by merging the two
• 26:00
  entities, converting the stores to logistics hubs and executing
• 26:04
  the $2 billion in operational cuts, the pro forma earnings per
• 26:08
  share would triple. It would jump from a baseline of
• 26:11
  $0.93 to 2.96 dollars. That is the core pitch to the
• 26:15
  institutions right there. Yeah, the argument is that the
• 26:18
  current eBay board is leaving money on the table through bloat
• 26:21
  and inefficiency. GameStop is basically telling
• 26:24
  BlackRock, you know you receive a massive cash dividend upfront
• 26:28
  today from the $27.75 billion cash pool, right?
• 26:32
  Then you receive a larger relative share of a
• 26:34
  significantly leaner, more profitable combined company
• 26:36
  moving forward because the expenses drop by $2 billion, the
• 26:40
  profit margins expand, and the earnings per share triple.
• 26:43
  You're trading the safety of the current board for the high yield
• 26:46
  and aggressive growth of the new model.
• 26:47
  And Morgan Stanley has analyzed the current standoff and
• 26:50
  outlined 4 potential outcomes from this point forward.
• 26:53
  First, GameStop could find additional inside financing from
• 26:56
  private equity and raise its cash bid to a level the
• 26:59
  institution simply cannot ignore, which wood forest the
• 27:02
  board to the table. Second, they could proceed with
• 27:05
  the proxy fight and the tender offer as it stands, relying on
• 27:09
  their current math and hoping the institutions buy into the
• 27:12
  EPS projections. The third option is that the
• 27:14
  deal just falls apart internally.
• 27:17
  GameStop might fail to secure approval from its own
• 27:19
  shareholders to issue the billions of dollars in new stock
• 27:22
  required for the 6040 rollover. If GameStop shareholders vote
• 27:26
  down the stock issuance, the deal dies from the inside.
• 27:29
  And the fourth outcome is that by putting a $50 billion price
• 27:33
  tag on eBay and publicly highlighting the potential for
• 27:36
  $2 billion in cost cuts, GameStop inadvertently puts eBay
• 27:40
  in play for a rival bidder. A larger tech conglomerate or a
• 27:43
  massive private equity firm with deeper pockets could step in,
• 27:47
  agree with Cohen's thesis about the bloat, and acquire eBay
• 27:50
  themselves. In that scenario, GameStop gets
• 27:53
  outbid, leaving them with a profit on their 5% option stake,
• 27:56
  but no actual merger. The entire market is watching
• 27:59
  this play out. It is a real time test of
• 28:02
  whether retail driven activism fueled by social media stunts
• 28:06
  and an uncompromising ideology can actually force a structural
• 28:09
  change at the highest institutional level of finance.
• 28:13
  It pits Internet culture against traditional corporate
• 28:15
  governance. Oh, the pursuit of eBay is
• 28:17
  really a collision between traditional risk averse
• 28:20
  corporate management and a radical, highly leveraged vision
• 28:22
  of modern commerce. It tests whether an aggressive
• 28:25
  operator can essentially use debt and a mobilized retail base
• 28:29
  to force a corporate evolution on a foundational tech giant.
• 28:32
  Whether GameStop successfully acquires eBay or not, the
• 28:35
  playbook for corporate acquisitions has been altered.
• 28:38
  A specialty retailer with a fraction of the market cap just
• 28:41
  prove that it can place a $50 billion company under siege
• 28:44
  simply by weaponizing transparency, leveraging social
• 28:48
  media, and applying an uncompromising owner operator
• 28:51
  ideology to the stagnant parts of the tech sector.
• 28:54
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• 28:59
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• 29:04
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