GameStop Wants to Buy eBay. It Could Collapse Its Credit Rating and Valuation in the Process.

GameStop (GME) was the poster boy of the meme stock rally in 2021, but when the craze fizzled out, shares began to witness an extended period of downtrend. In the last 52 weeks, GME stock has declined by roughly 21%.

Amidst the stock grind, however, GameStop recently submitted a non-binding proposal to acquire eBay (EBAY) at $125 per share in cash and stock. At the time of announcement, the offer implied a 46% premium to the closing price of EBAY stock. The news triggered a mixed reaction among market participants with concerns related to the credit stress on GameStop.

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Deal Structure and Impact on Credit

In the proposal, GameStop announced that the 50% cash part of the acquisition would be funded through its cash buffer and external financing. However, the company’s cash buffer of $9.4 billion (including liquid investments) implies additional acquisition financing of $20 billion.

Accordingly, Moody’s reports that the proposed transaction would result in a “material increase in debt and leverage.” On a standalone basis, eBay’s total debt was $7.2 billion at the end of 2025, while GameStop has outstanding debt of $4.2 billion. Combined with the $20 billion in acquisition financing, total debt would swell to $31.4 billion for the combined entity.

Moody’s also noted that the interest expense on new debt would likely be over $1 billion. Therefore, it seems unlikely that the combined entity would have an investment-grade credit rating. This impacts the chances that the potential acquisition is actually completed.

Finally, it’s worth noting that GameStop believes that $2 billion in annualized cost reduction is likely within 12 months of closing the acquisition. This target is optimistic, and any deviation from the potential synergies would imply a further worsening of the company’s credit health.

About GameStop Stock

Headquartered in Grapevine, Texas, GameStop is a specialty retailer offering games, collectibles, and entertainment products through its stores and e-commerce platforms. As of January 2026, the company operated 2,206 stores, with 1,598 stores in the United States, 308 in Europe, and 300 in Australia.

For fiscal 2025, GameStop reported revenue of $3.63 billion, down 5% year-over-year (YOY). For the same period, however, the firm reported operating income of $232.1 million. The company’s decline in revenue but improvement in operating margin came on the back of 727 store closures in 2025. While the headline numbers were unattractive, GameStop ended 2025 with a cash buffer of $9 billion.

With the anticipation of the cash buffer being utilized for acquisition-driven growth, GME stock has remained largely sideways in the last six months.

eBay Rejects GameStop’s Unsolicited Proposal

On May 12, eBay announced its decision to reject GameStop’s acquisition proposal. According to eBay, factors like “leverage, operational risks, and leadership structure of a combined entity” as well as GameStop’s governance and executive incentives resulted in the decision.

It’s worth noting that, in the first quarter of fiscal 2025, eBay reported YOY revenue growth of 2% to $2.6 billion. However, Q1 2026 revenue grew 17% YOY to $3.1 billion. Accordingly, eBay’s top-line acceleration and growing non-GAAP operating income added to the acquisition proposal sounding unattractive.

In the proposal, GameStop also detailed plans to reduce $1.2 billion in sales and marketing expenses if the business combination is completed. This is a part of its $2 billion annualized cost reduction plan. The negative impact of this plan on growth could be meaningful.

Conclusion

On a standalone basis, GameStop has been struggling with muted growth. At the same time, its operating margin is thin and a significant business turnaround seems unlikely. Therefore, the cash buffer in excess of $9 billion is critical as GameStop scouts for an acquisition to drive growth.

However, the potential acquisition of eBay has headwinds in the form of credit stress for the combined entity. The market’s dissatisfaction with the news is reflected in the price of GME stock, which continues to trend lower overall.

All told, investors may be better off staying on the sidelines, at least until there is further clarity on the outcome of proposal and its financing.

On the date of publication, Faisal Humayun Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com