Online marketplace eBay on Tuesday rejected GameStop’s proposal to combine the two companies in a cash and stock deal worth about $55 billion, calling it “neither credible nor attractive.”
GameStop last week announced its proposal to merge with eBay, a company nearly four times its size. The offer confused much of Wall Street, in part because of questions about how the company could afford it. GameStop CEO Ryan Cohen initially declined to specify how it would finance the deal.
EBay said on Tuesday that it had thoroughly reviewed the offer with its legal and financial advisers. In a letter to GameStop, eBay chairman Paul Pressler cited several concerns about the offer, including uncertainty about how it would be paid and the amount of debt the deal would add to the company.
The cornerstone of the deal was a letter GameStop secured from investment bank TD Bank saying it was “very confident” it would raise $20 billion to finance the offering. This non-binding letter stated that the trust rests in part on the assumption that the combined company will be investment grade
Ratings agency Moody’s called the deal “credit negative” and said it would increase eBay’s debt from $7 billion to $31 billion.
Mr. Cohen said that eBay shareholders would exchange about half of their eBay shares for shares in the combined company, which would most likely give them majority ownership of the new entity. He publicly said he would pay off the debt quickly.
In Tuesday’s letter, Mr. Pressler also highlighted eBay’s improved performance as it steers a turnaround to better compete with giants such as Amazon. eBay shares are up 55 percent over the past year, while GameStop shares are down 16 percent.
“We have sharpened our strategic focus, strengthened execution, improved our market and dealer experience, and consistently returned capital to shareholders,” Mr. Pressler wrote.
This is a developing story. Check back for updates.
