{"id":2314,"date":"2026-05-09T09:11:45","date_gmt":"2026-05-09T09:11:45","guid":{"rendered":"https:\/\/gw.adampg777.com\/?p=2314"},"modified":"2026-05-09T09:11:45","modified_gmt":"2026-05-09T09:11:45","slug":"why-gamestops-bid-for-ebay-echoes-one-of-the-worst-business-deals-of-all-time","status":"publish","type":"post","link":"https:\/\/gw.adampg777.com\/?p=2314","title":{"rendered":"Why GameStop’s bid for eBay echoes one of the worst business deals of all time"},"content":{"rendered":"

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By the start of 2000, I was already a veteran writer for Fortune <\/em>warning our readers that the dot.com craze had lifted Nasdaq valuations to unsustainable highs. All of the time-honored metrics pointed to the same outcome\u2014crash ahead! Then, AOL and Time Warner, Fortune<\/em>\u2018s parent as owner of magazine-maker Time Inc., issued a shocker for the ages that, as it turned out, confirmed my worst fears: The tiny internet hotshot, its brand barely a decade old, was purchasing the fabled media colossus multiple times its size. For the announcement at Time Warner\u2019s Manhattan headquarters, the media empire\u2019s CEO Jerry Levin, appearing sans<\/em> tie or jacket, took the stage alongside AOL chief Steve Case, and avowed his delight at taking Case\u2019s offer since \u201cI accept dot.com valuations.\u201d<\/p>\n

\n

Today, that transaction is generally cited as epitomizing arguably the craziest interlude in the annals of U.S. equity markets, and vilified as the worst big deal ever. So bad that no transaction based on similar terms, where minnow swallows the whale for a king\u2019s ransom, could happen again, or even be floated, right? Not so. When this journalist saw GameStop\u2019s bid to purchase eBay on Sunday, May 3, I instantly thought of all the offer\u2019s parallels to AOL-Time Warner. Most of all, the buyers\u2019 motives match in that both are now (in GameStop\u2019s case relatively) riding high, but face dim prospects ahead. Their solution: Using their inflated stock to land a sound money-maker that via the combo, will retain a lot more value for their shareholders than going it alone, and promising moonshot synergies to sell the deal. Predictably, GameStop\u2019s claims for the tie-up\u2019s benefits echo the fantasy forecasts for AOL-Time Warner.<\/p>\n

Hence, it\u2019s worth examining how the GameStop-eBay math resembles the AOL-Time Warner numbers. And how fundamentals like those for the both the 2000 wonder and its 2026 cousin, promise to doom any union from the start.<\/p>\n

GameStop would pay a giant premium for a high-flying stock, and multiply its share count to clinch a deal<\/h2>\n

GameStop offered $55.5 billion, or $125 a share for eBay; the video game and collectibles purveyor\u2019s CEO, Ryan Cohen, stated that the deal provides for half cash and half stock. GameStop had already secretly bought 5% of eBay shares before the announcement, starting on February 4th. Measured from that date, it\u2019s offering a towering premium of 46%. Those purchases likely contributed to a recent spike in eBay stock. At the close on Friday, May, 1, the last day of trading before the news broke, GameStop stood at $104, just off its all-time high reached a week earlier, following a gain of around 20% so far this year.<\/p>\n

It\u2019s unlikely, however, that eBay would agree to this initial overture of $55.5 billion. Michael Burry, the famed hedge fund manager and hero of The Big Short<\/em> book and film, bases his predictions on a follow-up bid of $65 billion, and found that scenario so terrifying that he sold all his GameStop holdings. So I\u2019ll go with the higher, more probable figure. At $65 billion, GameStop would be paying $131 a share. That\u2019s a 26% premium versus eBay\u2019s pre-announcement price, and 70% over where the internet marketplace was selling when GameStop started accumulating its 5% holding. As we\u2019ll see, this is an epic, AOL-Time Warner-style markup.<\/p>\n

Put simply, GameStop would be paying a huge premium on an already sizzling stock selling at pricey PE of 24 before<\/em> the offer. But here\u2019s the primary problem: GameStop\u2019s market cap, pre-bid, was just $11.9 billion, one fourth of eBay\u2019s $46.2 billion valuation. As a result of that mismatch, the buyer must issue an enormous slug of new stock to score. The equity portion would come to $37.5 billion (half our $65 billion purchase price). Raising that much would require selling an incredible 1.42 billion new shares at GameStop\u2019s pre-deal price of $26.5. Today, GameStop has 448 million shares outstanding. That count would swell to 1.87 billion, multiplying the current total over four-fold or 300%-plus<\/strong>. We\u2019re talking fearsome, seldom-explored dilution territory.<\/p>\n

In reality, eBay is \u201cbuying\u201d GameStop. Its shareholders would own 60% of the stock if a deal closes. Cohen would be the tie-up\u2019s CEO. <\/p>\n

That\u2019s just the stock part. GameStop\u2019s pledging to fund the rest, in our formula the remaining $37.5 billion, via fresh borrowings. Cohen says that he\u2019s secured a commitment from TD Securities for $20 billion in loans. As of January 31, the close of its 2026 fiscal year, GameStop held $9 billion in cash. Assuming it puts that total into the transaction, GameStop would need to borrow the difference of $28.5 billion, comprising TD\u2019s $20 billion plus an additional $8.5 billion from TD or other lenders. What interest rate would GameStop pay? It hasn\u2019t disclosed the TD terms, but we\u2019re looking at a pretty high-risk credit. Still, we\u2019ll take the optimistic view that GameStop secures a highly-favorable number, say 6.0%. That puts its additional annual interest expense, after-tax, at around $1.2 billion.<\/p>\n

At the end of its fiscal year, GameStop had earned $418 million, and over its past four quarters, eBay booked $2 billion, for a total of $2.418 billion. The new carrying charge of $1.3 billion from all the new debt would take that pro forma number down to $1.1 billion. To ensure that GameStop shares just maintain the pre-offer price, the combination would need a market cap of around $50 billion. Sounds low, given GameStop\u2019s paying in our example $65 billion for eBay. But keep in mind that this is a highly-leveraged transaction resembling an LBO. GameStop assuming $28.5 billion in new debt, and also emptying its cash coffers, greatly lifting its risk profile.<\/p>\n

In our pro-forma analysis, the new GameStop would launch earning around $1.1 billion a year. So at a $50 billion valuation, it would be sporting a multiple of over 45. For context, that\u2019s 36% above Amazon\u2019s multiple of 33 and edges Nvidia at 42. Cohen claims that combining the enterprises will get profits soaring as he installs an \u201centrepreneurial mindset\u201d on the eBay side, and re-deploys GameStop\u2019s 1,600 stores as fulfillment centers for eBay orders, slashing overall costs. The goal, he avows, is creating \u201ca legit competitor to Amazon.\u201d<\/p>\n

In fact, Cohen\u2019s hinting at a different thought process. He\u2019s done a fantastic job slashing expenses at GameStop in a campaign that\u2019s stabilized it stock price after crashing from the meme-frenzy\u2019s heights in 2021. But in a CNBC interview the day of the announcement, he admitted that \u201cGameStop\u2019s in a difficult position, it should have gone bankrupt many times over.\u201d In fact, GameStop\u2019s revenues are declining fast. Even big-time cost-slashing can\u2019t save it forever.<\/p>\n

Teaming with eBay adds a highly-reliable profit spinner, the opposite of GameStop\u2019s status. In theory, the gambit should secure more value of GameStop\u2019s shareholders than going solo, even if the combination\u2019s shares decline. But the lesson from AOL-Time Warner holds that promised big synergies can sour into integration problems that drive up expenses instead, so that the combination of paying a huge price, and getting negative savings, tanks the stock.<\/p>\n

Deja-vu: AOL set the template where the little guy lands the giant, via gigantic dilution <\/h2>\n

The AOL-Time Warner transaction differed from GameStop-eBay in one important respect: It was an all-stock deal. AOL was an early internet service provider (ISP) that relied on dial-up connections heralded by the famed alert, \u201cYou\u2019ve got mail!\u201d It\u2019s unclear why the AOL leadership, headed by CEO and co-founder Steve Case, made the offer heard round the world. But AOL\u2019s stock price exploded in the dot.com phenomenon, and appeared hugely overvalued, and Case seemed to know it. If competitors leapfrogged AOL\u2019s technology, its share price would tumble. But Case had a remedy at hand. He could marshal his super-rich currency to buy a much bigger company featuring far more durable earnings. That move would protect his own investors against a potential sharp fall in his own shares, and leave them a lot of value even if the stock of the combined company fell. <\/p>\n

Time Warner fit the profile: It was a collection of time-tested media properties comprising magazines such as Time<\/em>, Fortune<\/em>, Sports Illustrated<\/em> and People<\/em>, networks CNN and Turner Broadcasting, and cable and music properties, not to mention the legendary Warner movie studios.<\/p>\n

Time Warner secretly agreed to the AOL purchase, and the two parties unveiled the merger in January of 2000. At the time, the target harbored four times the revenues of the acquirer. AOL\u2019s edge: Despite its puny size, it carried an outrageous valuation of $192 billion, twice Time Warner\u2019s market cap. Case\u2019s bait: Paying a 70% or $64 billion premium. In effect, the Time Warner shareholders got AOL stock at a then-value that looked like windfall. Despite its inflated stock price, AOL still had to increase its shares outstanding by 120% to make the buy, again mirroring the huge dilution in Gamestop-eBay.<\/p>\n

Interestingly, the 70% premium is about the same as GameStop would shoulder if it pays $65 billion for eBay. Another common feature was starting at a Big PE, though AOL-Time Warner\u2019s was bigger. The day Case and Time Warner CEO Jerry Levin took the stage, AOL-Time Warner had a pro-forma market cap of $253 billion. In the previous 12 months, Time Warner had earned $1.9 billion and AOL $1.0 billion for a total of $2.9 billion. Therein lay the problem. AOL Time Warner began life at 82-times earnings. It was mathematically impossible for the NewCo to grow profits fast enough to ever justify a $250 billion-plus valuation to start, let alone expand it from there. To her immense credit, the great Fortune<\/em> journalist Carol Loomis wrote a negative critique of the transaction in our pages. It opened by noting that the deal featured gigantic numbers getting wows in the media, but the real wonder was what was \u201csmall,\u201d and that was those meagre earnings.<\/p>\n

Gamestop-eBay would launch a much lower PE of 45. But it\u2019s still gives shareholders a scant $2 in profits for every $100 they pay for the stock. And keep in mind that unlike AOL Time Warner, it\u2019s also carrying a highly-heavy debt load. As Burry cautions, the new GameStop\u2019s cash flow would provide only a narrow margin of safety over its big interest payments.<\/p>\n

Vastly overpaying for such slim (and in AOL\u2019s case, falling) profits cratered the combo at warp speed. By the time the merger closed a year later, AOL Time Warner shares had dropped by a third. In January 2003, angry former Time Warner shareholders booted Case as chairman, and that September, the board dropped the AOL name. When Time Warner finally dumped AOL for $3.3 billion in 2009, the media icon\u2019s valuation had dropped from $253 billion at the unveiling to $61 billion, a collapse of 76%.<\/p>\n

EBay\u2019s board is now pondering GameStop\u2019s offer. The directors might examine AOL-Time Warner as a primer on how what looks like a fabulous markup is really a poison chalice.<\/p>\n<\/div>\n

#GameStops #bid #eBay #echoes #worst #business #deals #time<\/p>\n","protected":false},"excerpt":{"rendered":"

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