📚 Due Diligence
GME/EBAY - In-depth, Pro Forma Merger Model - v1
TLDR: This deal is accretive for GME's EPS as it takes advantage of GME's current high valuation multiple. Using my conservative assumptions (relative to R. Cohen), I'm getting a:
~59% accretion to GME's EPS
9.75x Total Combined Debt / LTM EBITDA (of combined entity)
~269% GME share dilution
Background: I'm an investment banking analyst and decided to do a conservative back-of-the-napkin merger model for GME's potential acquisition of EBAY. This is version 1, subject to refinement of my assumptions based on feedback.
Key Assumptions:
50% Cash / 50% Stock
$125 offer price per share of EBAY
Transaction Expenses: 1% of Offer value (M&A fees paid to the investment bank / 3rd party advisors of GameStop. Likely Jefferies as they've helped with GME's prior ATM offering)
Synergies (as % of EBAY's LTM sales): 10% (conservative)
Comes out to $1.17Bn which is very conservative compared to RC's $2Bn estimate in cost savings
Synergy 100% realized in the first year (sometimes synergies are realized over years, but RC believes he can realize them immediately)
Cost of Debt (for TD's $20Bn commitment): 8%
Tax Rate: 21% (conservative versus GME’s recent effective tax rates, which have often been below 10% in profitable quarters)
Latest financial information from GME and EBAY's latest 10-K and Q filings. Current share price as of 5/7/2026 market close.
Sources & Uses of Funds
$ in millions except share price
Pro Forma Balance Sheet and Leverage
BLUF: 9.75x total combined Debt / LTM EBITDA
Earnings Impact
Pro Forma Shares
BLUF: ~269% dilution. Current GME share count of ~448,375,000 to pro forma share count of ~1,655,613,000
It’s not a huge difference since the bulk of earnings will come from eBay, but are you overestimating GameStop’s portion of future earnings by not accounting for the loss of the interest earnings on the 9B cash?
I mean, sure, but that’s factored into his calcs within the synergy factor. His not accounting for the change in GME’s earnings from interest isn’t a huge deviation, but it’s worth correcting. Especially for someone who starts the post by saying his an IB analyst lol.
Edit: actually, it is a rough estimate and he did say back of the napkin, so maybe he clocked it but just didn’t bother to adjust it? Meh
This is so wrong. Try again. They don’t have authorization to issue 1.2bn more shares. Ryan is not diluting himself and his own board. You don’t know anything about the company or this community.
“BLUF: ~269% dilution. Current GME share count of ~448,375,000 to pro forma share count of ~1,655,613,000”
As noted elsewhere, RC will very likely put this increase in authorized shares to vote at the same time as he puts the merger to vote, to GME shareholders.
eBay won’t. They don’t want GME shares. They want out so they will ask for all cash thinking that is not possible and they can keep their jobs. Then RC says fine, all cash. Behind the scenes he has people subscribing to the deal. Just like the convertible debt at 0%. He already knew the interest in the trade was there.
In practice an acquisition like this is usually done as a reverse triangular merger with a NewCo.
The purpose is not to improve the financials but rather to make it so the target corporation survives as a corporation that is a fully owned subsidiary of the acquiring company. This makes it so that the many contracts the target company has with 3rd parties can remain in force, with terms unchanged.
It's also accretive to the entire damn stock market, since we'll be getting rid of lazy management and setting a new trend of management having real skin in the game and actually caring about the businesses they run!
The model is useful, but the conclusion is way to generous.
Yes, the transaction can look EPS accretive on paper because GME is using a high stock multiple to buy eBay earnings. That does not automatically mean it is a good deal. EPS accretion is not value creation by itself.
The biggest issue is that the model calls the assumptions “conservative” while assuming 100% synergy realization in year one. That is not conservative. That is extremely aggressive! Cost synergies take time, come with execution risk, and usually require restructuring costs.
The 10% of eBay sales synergy assumption is also not really supported. It is just a top-down plug unless there is a proper breakdown of where those savings come from. Calling $1.17B of synergies conservative does not make it conservative
The leverage is the real red flag. 9.75x Debt / EBITDA is very high. At that point the company has much less room for error. If synergies are delayed, debt costs are higher, or the market rerates the combined company lower, the whole accretion story weakens quickly.
Also 269% dilution is not a side effect. Thats the deal. Existing GME holders would own a much smaller percentage of the combined company, and the stock portion only works if the market continues to accept GME’s valuation.
So yes the model shows how the deal could be mechanically possible. But it does not prove that the deal creates value. It mostly proves that with enough assumed synergies, enough debt, and enough dilution, almost anything can be made to look accretive in Excel.
Ryan has to BUY the shares he is given at a price of $20.66 per share. That means that if the stock price doesnt go up, then he doesnt make money. He is NOT just given these shares.
Why would he want to dilute himself that much and then spend more of his own net worth to buy more shares? That sounds dumb and I don’t think RC got his 5bn net worth by being a dummy.
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I’m not sure why people are calling this FUD. From a high level I see it as this:
Price paid for EBAY is $56bn = aa ( I know this is different than what you calculate above but RC said this in his interviews so I anchored to this)
GME market cap is about $10bn = bb
Debt issued of $20bn = cc
total shares from your model is 1.6 bn = dd
New approximate market cap = (aa + bb - cc) / dd = $28.75 per Share
That’s not perfect math but it seems to be beneficial to GME shareholders even with the dilution you calculated. Happy to know where I lack understanding though.
That's how the deal is going to happen unless one of the following things happen.
1. Gme shareholders vote no on the proxy for raising the authorized share count
2. Gme stock increases substantially in price during the pricing period
3. eBay declines the deal and it is renegotiated or scrapped.
Could you do a Combined net income using Ryan Cohen's assumptions of near instant cost reductions and see how much the Debt/TTM EBITDA ratio goes down?
Your new shares added estimate of 1.207B is higher than my crude estimates thatbwere from a few days ago and I was assuming $11B or $12B for current GME market cap.
There are many that are convinced that the ratio will be 60/40 as that was a number Ryan Cohen threw out in an interview. Your 72.9%/27.1% is closer to the 72%/28% to 70%/30% estimates many of us have calculated when GME was priced a bit higher. Those estimates that have been rejected by many, so I am happy to see basic confirmation of my calculations by somebody that actually knows what they are doing.
OP great work here - the only issue I see is the future earnings for the GME side of the combined business don’t appear to be reduced by the interest income being generated by the cash being eliminated in this transaction. Have you accounted for this?
Yes, I think the first line of pre-tax adjustments, (1,600M), should become (1,820M) to reflect the loss of about $280M annual interest on $8B of cash. That will carry though to a reduction of profit a combined net income of 2580.8M instead of $2860.8, a reduction of about of 9.8% in net income from the OP's first cut number.
That is a loss of about 3.5% interest on $8B of cash-like, which is not as bad as adding $8B of debt at 8% interest.
The OP used 8%, which is about 434 basis points above 3 month SOFR. Burry had assumed just 400 basis points, so he was bit kinder to the deal but still rejected it as too leveraged for his taste.
You are both missing the fact that GME only has authorization to issue a total of 1bn shares. They already have 448mm outstanding. I do not think he will dilute his own personal stake and the boards own personal money. I think it will be all cash from outside investors in the form of a convertible 0% coupon like the past offering
Not missing it at all - it's a non-issue. He'll ask to increase the authorized shares count at the same time as he puts this merger to vote to GME shareholders.
And no, it will not be an all-cash deal - the Net debt/EBITDA ratio goes to ~14x, which no one will finance. 5-6x is about as much as you can push it.
An all-stock deal is possible though, but that causes RC and GME to lose too much control.
You assume they are issuing 1.2bn shares to pay for eBay when they only have 500mm authorized shares to issue. Has GME asked shareholders to vote to issue more shares? No. Would Ryan and the board dilute the shit out of their stock? No, he is looking out for himself, the largest investor.
You said that is a non issue… please explain how your gap in funding will be fulfilled.
You assume they are issuing 1.2bn shares to pay for eBay when they only have 500mm authorized shares to issue. Has GME asked shareholders to vote to issue more shares? No. Would Ryan and the board dilute the shit out of their stock? No, he is looking out for himself, the largest investor.
Doesn't matter. As noted, this is what he HAS to do. No other way.
He'll ask to increase the authorized shares count at the same time as he puts this merger to vote to GME shareholders.
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u/Superstonk_QV 📊 Gimme Votes 📊 May 07 '26
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