Shares of GameStop Corp (NYSE:GME) rose more than 4% in Friday after-hours trading after reports surfaced that the company is preparing a formal offer for eBay Inc (NASDAQ:EBAY). The market reaction was more pronounced at eBay, where the stock climbed over 12% as investors assessed the implications of a potential combination between the physical retail chain and one of the largest online secondary marketplaces.
According to reporting cited by market participants, GameStop CEO Ryan Cohen is pursuing the possible deal as part of a broader strategic repositioning aimed at turning the company into a substantially larger retail enterprise. People familiar with the matter said Cohen has been quietly accumulating a stake in eBay ahead of any formal bid.
The proposed transaction would appear to align with GameStop’s recent product and merchandising emphasis on higher-end collectibles and gaming memorabilia. That emphasis dovetails with eBay’s existing marketplace, which is described as a primary global hub for secondary-market collectibles and rare items, making the two companies' operations complementary in product focus.
From a scale perspective, the move would pit GameStop against a target several times its current size. GameStop is currently valued at about $12 billion, while eBay carries a market capitalization in the neighborhood of $46 billion. GameStop’s financial position includes nearly $9 billion in cash reserves as of March, a balance that the company has bolstered recently and which could be relevant to financing or negotiating a transaction.
Market observers said an official offer could be presented to eBay’s board as soon as later this month. The reports also noted that, if eBay’s leadership does not welcome the overture, Cohen could bypass the board and take his case directly to eBay shareholders.
Compensation arrangements for Cohen were cited as a motivating factor behind the push. Under terms adjusted in a recent package, Cohen could receive as much as $35 billion in stock if GameStop’s market value reaches the $100 billion threshold identified in prior disclosures. The incentives are structured around achieving that sizable market-cap milestone and appear to be a factor in the company’s aggressive pursuit of transformative targets.
Observers are awaiting a formal response from eBay’s board of directors. Should the company’s directors resist the proposal, Cohen is expected to lean on his considerable online following as a way to marshal support among shareholders, raising the prospect of a proxy contest if negotiations do not progress.
For now, markets have priced in the possibility of a bid by moving both stocks higher in after-hours trading, while investors and industry watchers look for confirmation from either company on the timing and substance of any formal approach.