Video game retailer GameStop saw its share price drop 6.5% in Monday’s trade, 4 May, reaching a day’s low of $24.80 on the NYSE, after the company proposed buying e-commerce giant eBay for $55.5 billion, reversing sharp gains in recent sessions.
The unprecedented takeover bid by the much larger eBay drew scepticism from investors and analysts on Monday, triggering a wave of selling spree right after the opening bell. While the prospect of a buyout deal has sent eBay shares higher by 7%, reaching the day’s high of $111.
Smaller buyer, bigger target
The nearly $12 billion video-game retailer, popular among meme-stock traders, is attempting a half-cash, half-stock buyout of a company with a market value nearly four times its own, using just around $9 billion in cash and a debt load of $4.2 billion.
As per Friday’s closing price, eBay is valued at $46.2 billion. Notably, the proposed deal marks a rare instance in which the company has attempted to acquire an entity almost four times its size. Only a few deals in which a smaller company has bought a much larger one have succeeded.
GameStop has been planning to take over eBay, as it quietly began accumulating a stake last week and is now offering to buy it at $125 per share, according to a press release. The company also claims to have secured a commitment from TD Bank to provide around $20 billion in debt financing for the deal.
GameStop CEO Ryan Cohen told the Wall Street Journal that he’s willing to pursue a proxy fight and take his offer directly to eBay shareholders if the board refuses.
Cohen, in a letter to eBay, promised to deliver $2 billion in annualised cost reductions within twelve months of closing the deal. In the letter, he targeted the e-commerce giant’s sales & marketing budget, noting that the massive spending resulted in a net increase of fewer than 1 million active buyers in fiscal 2025.
He also states that it would cut $500 million in costs by consolidating general & administrative functions and another $300 million by trimming product development.
The retailer projects that these reductions alone would drive eBay’s diluted earnings per share from $4.26 to $7.79 in year one. Under the proposed deal, Cohen would become CEO of a combined company that uses GameStop’s physical stores as hubs for eBay’s authentication and fulfilment services.
Meanwhile, eBay said it was reviewing the offer, including GameStop’s ability to deliver a “binding, actionable proposal.”
Both eBay and GameStop sell collectables such as trading cards, but their mainstay businesses are different. While eBay earns fees by connecting buyers and sellers online without holding inventory, GameStop is a traditional retailer that buys goods wholesale and resells them through physical stores.
Stock continues to witness sharp swings
GameStop shares have struggled to gain momentum over the last three months, largely remaining stagnant.
Over the years, the stock has not displayed any sustained pattern of either winning or losing momentum, as it has remained highly volatile, rallying sharply in some months, only to surrender those gains in the following months, and then reversing losses again. This cycle has continued almost consistently since 2021.
In terms of yearly performance, the stock delivered a massive 78% return in 2024. However, the following year, it erased nearly half those gains after plunging 36%. So far this year, the stock has rebounded by 26%.
(With inputs from Reuters)
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
