Can GameStop buy eBay?

Rob Armstrong (0:00)

GameStop, the meme stock that listeners will remember was destined to go to the moon, has decided to stay on earth instead, where it will attempt to buy a much larger company, eBay. Today on the show, can the mouse eat the lion?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from an unseasonably chilly New York City. And joining me in the studio is the head of the FT's Lex column, John Foley. Hi, John.

John Foley (0:38)

I'm here to announce that Lex is performing a hostile takeover of Unhedged.

Rob Armstrong (0:42)

Oh, man. I'm calling my lawyer.

John Foley (0:44)

I don't think I want that.

Rob Armstrong (0:45)

No. My initial temptation on hearing that GameStop, which we last heard of when it was chased to unrealistic highs by adrenaline-addled retail investors, is trying to buy mighty eBay, was to dismiss it as a gag that would soon go away.

But you've written that maybe this is something that deserves to be taken seriously. And can you walk us through that?

John Foley (1:16)

Well, for full disclosure, I always like it when people in finance try and do silly things because it's interesting and I think creativity should be praised.

So I was thinking about not dismissing this out of hand when it happened, but it is, on the face of it, completely wild, the idea that GameStop, which is about an $11 billion company, could buy eBay, which is like a $46 billion company, and eBay, a company that's doing really well. I mean, I haven't...

Rob Armstrong (1:44)

eBay's doing well.

John Foley (1:45)

Yeah, I will admit, also, second piece of full disclosure is that I haven't actually used eBay in about 15 years, but the share price has been rocketing 50% of the year.

Rob Armstrong (1:53)

I have a disclosure to make too, which is that this pair of shoes, which I'm showing to John right now...

John Foley (1:59)

From eBay...

Rob Armstrong (2:00)

.are from eBay. These are a pair of wingtips that are from back when Alden and Brooks Brothers made shoes together. This is a prized item. They're kind of burgundy color.

I got a great price.

John Foley (2:14)

I wonder who owned them before though? Do you not find yourself everyday wondering who walked in those shoes?

Rob Armstrong (2:19)

They're like a dead guy's shoes and his ghost is following me around.

John Foley (2:22)

Did they die in the shoes?

Rob Armstrong (2:25)

They were stolen off a corpse after a shootout.

John Foley (2:30)

So, right, GameStop wants to buy eBay. It's an unsolicited offer.

The CEO of GameStop is this guy called Ryan Cohen, who is a sort of like an icon in the meme stock world. But he's very, very hostile towards traditional corporate governance and big, you know, America Inc. So he's launched this, there's something very, he's kind of trolling eBay at the same time as trying to buy it. He's just gone out with it in public, said, here's what I want. If you don't, if you're not interested eBay board, I'm going to try and do it anyway by going hostile.

It's fascinating.

Rob Armstrong (3:07)

So is it a massive PR stunt or do you think he means it?

John Foley (3:11)

Well, GameStop is, so GameStop was once a chain of video game stores, and it still is kind of, but it's a much shrunken version of that. What it really is now is a pile of cash. So Cohen has been using the meme stockiness of it to issue convertible bonds and raise cash. So he now has about nine and a half billion dollars of cash. And the idea is that at some point he would invest in something that would make lots of money.

Rob Armstrong (3:33)

And by the way, I've often said this about the meme stocks. Like if the market, for reasons unknown, decides to massively overvalue your shares, for goodness sake, sell the market more of the shares.

John Foley (3:49)

Yeah, which they did, right? That's exactly what they did.

Rob Armstrong (3:51)

That is the rational thing to do. That is the best thing you can do for shareholders.

John Foley (3:55)

So he has this cash, right?

And the idea is he'll spend it on something and he's decided that eBay is the thing. And there is a fig leaf of industrial logic to this because of eBay. So GameStop, as well as selling video games and second-hand video games, is also doing a lot of collectibles like trading cards and things like that. eBay is also doing a lot more of that. One of the fastest growing parts of eBay is now collectibles and also trading cards. So his theory is that if you put them together, you turn his stores into eBay real world outlets and you focus on more live streaming sales and you also sell more expensive trinkets. I think like really expensive luxury fountain, pre-owned fountain pens. He thinks this is going to make eBay grow even faster. And he also thinks that he's really good at retail, cutting costs, so he's going to cut eBay's costs. Whether any of that is true is the big question that is going to have to be answered later.