Three months after Ryan Cohen startled Wall Street with an unsolicited $56 billion bid for eBay Inc. (NASDAQ:EBAY), GameStop Corp. (NYSE:GME)'s CEO appears to be backing away from it. Bloomberg reported on August 10 that Cohen is considering withdrawing the offer entirely and replacing it with something far more modest: a partnership or joint venture. Following reports describing the probable change, GameStop Corp. (NYSE:GME) shares climbed 1.6% in early trade, while eBay Inc. (NASDAQ:EBAY) shares sank 2.2%.
The turnaround caps a saga where the stock market gave its verdict on the deal's worth long before Cohen did. GameStop's initial approach, made in May, was a $125-per-share offer divided evenly between cash and GME stock, an attempt by the much smaller video-game store to swallow a firm approximately six times its size. eBay's board rejected it days later, calling it "neither credible nor attractive", flagging concerns over how GameStop Corp. (NYSE:GME), which had just $8.4 billion in cash compared to a market value that had dropped to $8.6 billion, would actually fund it. Cohen didn't take no for an answer.
The CEO of GameStop kept buying eBay stock through the summer, building the company's stake to 9.75% to become eBay's second-largest shareholder, trailing only Vanguard's index funds. He stated on Bloomberg TV that he planned to close a deal "one way or another." That said, it appears this conviction is waning. Cohen is reportedly exploring a more limited approach, which would allow eBay Inc. (NASDAQ:EBAY) to expand in high-margin areas like trading cards and collectibles by utilizing GameStop's roughly 1,600 US retail locations.
In exchange, GameStop Corp. (NYSE:GME) would want a seat or two on eBay's board. Notably, GameStop has not yet made a choice, and it is only a fraction of the initial bid's ambition. GameStop's stock has dropped 28% since the bid was revealed in May, while eBay's has increased 7.6%.
That's about as clear a signal as markets can give. Investors viewed the acquisition as detrimental to GameStop's value and mostly disregarded it as a major risk to eBay Inc. (NASDAQ:EBAY), whose stock continued to rise throughout the whole incident. The response to the news on August 10 followed the same pattern.
In premarket trading, GameStop Corp. (NYSE:GME) shares slightly increased while eBay slightly decreased. The market saw a withdrawal from an excessive, ill-funded bid as positive news for the acquirer and only slightly negative for the target since few investors appeared to think the original deal would ever close. Prior to the report, smart-money positioning indicated a growing sentiment gap between the two retailers.
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