Michael Burry has divested his entire stake in GameStop following the company’s ambitious attempt to acquire eBay. In a recent Substack post, Burry expressed concerns that the proposed deal would undermine the investment case he had established. He stated, "I sold my entire GME position," highlighting that the significant debt ratios associated with the acquisition—specifically a proposed debt level of over five times EBITDA—were incompatible with his investment philosophy.
GameStop’s unsolicited offer for eBay is valued at approximately $55.5 billion, or $125 per share, which represents a substantial premium to eBay’s recent trading figures. However, this proposal has raised doubts regarding the feasibility of financing given GameStop’s market capitalization of nearly $12 billion. Share prices for GameStop fell by about 10% following the announcement, indicating investor skepticism about the company’s ability to absorb the financial burden of the acquisition.
Burry noted that the proposed capital structure might push leverage to around 7.7 times EBITDA, a level that he considers borderline distressed. He referenced other companies, such as Wayfair and Carvana, which have faced significant challenges under comparable debt situations. Despite securing a $20 billion financing letter from TD Bank, there remains uncertainty regarding how GameStop plans to fund the acquisition, as the gap between available financing and the purchase price is considerable. CEO Ryan Cohen, during a recent CNBC interview, replied vaguely when questioned about financing plans, indicating some flexibility to issue equity but providing no concrete details.
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