GameStop turns its eBay contracts into stock and gains voting power

GameStop (NYSE: GME) now owns almost one-tenth of eBay (NASDAQ: EBAY) after turning a large set of financial contracts into actual stock.

A filing released late Friday showed the retailer holds 43.39 million eBay shares, equal to 9.8% of the online marketplace. Ryan Cohen is still chasing a takeover even though eBay rejected his first proposal in May.

The size of the holding has nearly doubled since early May. At that point, GameStop controlled about a 5% financial interest through derivatives and beneficial ownership.

Ryan had already told eBay’s board chairman that he wanted to buy the business for about $56 billion. The target is roughly five times larger than GameStop, so the funding plan has drawn heavy attention from Wall Street.

GameStop bought about 3.5 million eBay shares for nearly $381 million in mid-June. It then completed the physical settlement of put and call pairs tied to around 39 million shares on July 15.

Those deals took its total position to just under the 10% line. The ownership position disclosed on Friday had 43.4 million shares outstanding, while the precise number of transactions was 43.39 million when the two legs were added up.

Prior to settlement, the bulk of the position was held in derivatives. The derivative contracts enabled GameStop to gain from any movements in the stock price of eBay, but without having the shares in their possession or owning them outright. Taking delivery of the stock reversed this situation.

A second filing published Friday included comments from Ryan’s Bloomberg Television interview from Thursday. “I’m not going to call my shots, but we’re coming for eBay one way or another,” he said.

Ryan first pitched the deal two months earlier. He said a combined GameStop and eBay, under his control, could compete more directly with Amazon (NASDAQ: AMZN). eBay turned down the mix of cash and stock and called it “neither credible nor attractive.”

Ryan did not drop the idea after the rejection. He repeated in several interviews that he still planned to pursue the company.

GameStop investors also approved a larger authorized share count last month, giving the board more room to use stock while arranging a deal. Ryan has also committed $500 million of his own money.

Ryan keeps the bid unchanged while Wall Street questions the financing

The biggest concern is still the debt package. GameStop is leaning heavily on a nonbinding letter from TD Securities for as much as $20 billion. That money depends on the combined business receiving an investment-grade credit rating, so the financing is not locked in.

The letter does not force TD Securities to provide the cash, and no final loan agreement has been announced yet.

Ryan pushed back during the Bloomberg interview. “There has been a complete failure by the media to explain why this transaction makes sense,” he said. He also said GameStop has a “highly confident” letter from its bankers and added, “We have a lot of parties that are interested in this transaction.”

Bloomberg also asked whether he would offer more money for eBay. “I’m not going to negotiate against myself,” Ryan replied.

Retail traders were split across the two stocks. Stocktwits showed GME sentiment in bullish territory during the past 24 hours, while message activity stayed at normal levels. EBAY sentiment remained bearish.

The market performance also favored eBay. EBAY shares were up 29% year to date, while GME stock had gained 9%.

NOTE: The author of this article owns GME stock.

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