Unpacking GameStop’s Wild eBay Bid

Welcome back to Money Games, my monthly take on sports, business, and all things leadership. Thanks for reading and subscribing, and please share with your friends and colleagues.

— Joe

GameStop is once again driving headlines, only this time it’s a poorly thought out attempt to buy eBay, rather than meme stock frenzy.

The simple truth is this: Maybe there’s a case to be made for GameStop buying the online auction site, but that case hasn’t been made, and it doesn’t make a lot of sense at face value. The only person who could make it make sense, GameStop CEO Ryan Cohen, hasn’t made much of an effort, and that’s why eBay rejected the offer, saying it was neither “credible nor attractive.”

Cohen is failing to communicate effectively with investors and the public (most notably in an awkward interview led by CNBC Squawk Box host Andrew Ross Sorkin which I unpack below), but, as with most things meme stocks, it seems unlikely that this is the end of the story.

Let’s rewind: On May 4, The Wall Street Journal reported that GameStop had built up a 5% stake in eBay (it’s since increased to 6%) and was making an unsolicited, $56 billion bid with a 50/50 mix of cash and stock. Cohen said that he believed “eBay should be worth—and will be worth—a lot more money,” and that he believed he could turn eBay into a company worth “hundreds of billions of dollars.”

That’s a big claim to back up, and unfortunately, the numbers just don’t seem to work. GameStop is worth only around $12 billion, and eBay is roughly five times their market cap. It’s just way too big, even with the $20 billion in debt financing that Cohen said TDBank was willing to provide.

So, where is the rest of the money going to come from? Private equity or some other source? It’s unclear, and Michael Burry sold his GameStop stock last week because he was worried about the level of debt that would be required to make the deal happen.

Even more perplexing is why Cohen thinks this is a good idea for eBay. Sure, he says he’s got a great plan and told CNBC that he thought it could become an Amazon competitor, but—it should go without saying—just declaring you’ve got a plan is not a good basis for a deal. Going on CNBC and saying that “the details are on our website” and that you haven’t even had conversations with eBay does not instill confidence.

And by the way, the interview ran for 15 minutes and never got better. When Andrew Ross Sorkin asked Cohen how he expected to raise the money required to do the deal, he enthusiastically replied, “We’ll see what happens.”

I would never accept that kind of answer from someone who worked for me. Coming from the CEO of a publicly traded company, it’s unthinkable.

That’s not to say that there couldn’t be a good case for the combination. Maybe there’s a great deal to be had for eBay shareholders. Maybe GameStop plus eBay could really be an Amazon killer. Maybe, as Sorkin suggested, eBay should buy GameStop instead.

But it’s Cohen’s responsibility to explain to eBay shareholders, analysts, investors, and the world at large, what his plan is and how it would work, and to do that in a way that produces total confidence. The fact that the numbers don’t work, and it would likely require large amounts of debt, places the bar even higher. It’s even more confusing considering that GameStop stock is down roughly 16% over the past year, while eBay’s is up around 55%. One of a CEO’s important responsibilities is to communicate, and Cohen came off as confusing and half-baked, not like a man with a serious plan and the ability to execute.

So where does that leave us?

While eBay has rejected the offer, Cohen could come back with another proposal. He’s indicated that one pathway to raising the money would be diluting GameStop stock. Perhaps he believes he can issue a massive number of shares and see them buoyed by meme stock mania, boosting his buying power. Maybe he’s quietly shopping a killer plan for the combined company and a major private equity player will come out of the woodwork and put even more money behind the deal.

But for now, I don’t buy it.

Share

While I don’t follow the New York Mets closely, this season has caught my attention. They have one of the highest payrolls in baseball and yet delivered a 12 game losing streak in the first weeks of the season. The last time they lost so many games in a row was 2002. It was their worst April performance since their first season in 1962.

What’s going on? How do you reconcile sky-high spending with gutter performance? Are you overpaying for mediocre players, or do you have great players and something else isn’t working?

Longtime fans may chalk it up to the Mets being the Mets, but there’s more to it than that. Clearly the team isn’t coming together, and they’re not able to deliver the goods. Injuries have contributed, but there are plenty of other teams who have spent less and are playing much better. It’s difficult to win without good players, but you can also have good players and not win. That comes down to coaching and leadership.

So, take a look at that part of the equation. What’s morale like in the club house? Are the guys working hard? Are they making mistakes? Are they where they need to be mentally?

All of those things matter. Character matters and how you behave in the clubhouse matters.

It’s true for any team. It’s also where the coaches and leadership can make a big difference. In college football, Indiana probably had a losing mindset before Curt Cignetti took over as head coach. Now, with him at the helm, they’ve gone from the losingest team in college football to national champions.

The Mets need their Cignetti.

Mets Manager Carlos Mendoza is in the third year of his contract. President of Baseball Operations David Stearns joined the operation in 2023. Both of these guys now have multiple seasons under their belts, but performance isn’t where it should be. They’re almost certainly feeling the heat from owner Steve Cohen, and their jobs rightly should be on the line if they’re well-paid and have the resources they need.

Now, is it premature to make a decision about Mendoza and Stearns? Maybe.

Juan Soto was injured and Francisco Lindor is still on the injured list. But if there’s not significant improvement by the All Star break with Soto back on the field, then a tough decision probably needs to be made.

Share

The playwright George Bernard Shaw had an incredible insight about the nature of communication.

“The single biggest problem in communication is the illusion that it has taken place.”