Source: Fortune
Summary
Fortune writer recalls AOL-Time Warner deal as GameStop bids for eBay. GameStop’s bid for eBay mirrors AOL-Time Warner’s failed deal. Both involved a smaller company with high stock price and uncertain future buying a larger company with stable earnings. GameStop’s offer of $55.5 billion, or $125 a share for eBay, is a 46% premium. The deal would require GameStop to issue a large amount of new stock, diluting its current shares. The combined company would have a high debt load and a high price-to-earnings ratio. The article draws parallels between the two deals and warns of potential pitfalls.
Our Reading
The numbers tell one story.
GameStop’s bid for eBay is a replay of AOL-Time Warner’s failed deal. Both involve a smaller company with a high stock price and uncertain future buying a larger company with stable earnings. The deal would require GameStop to issue a large amount of new stock, diluting its current shares. GameStop’s CEO Ryan Cohen promises “moonshot synergies” to sell the deal, but the article is skeptical. The combined company would have a high debt load and a high price-to-earnings ratio, making it vulnerable to market fluctuations.
GameStop is “buying” eBay with inflated stock, and eBay shareholders would own 60% of the combined company. The deal’s fate is uncertain, but the article warns of potential pitfalls, citing the AOL-Time Warner deal as a cautionary tale.
Author: Evan Null
