Ryan Cohen's mysterious bank letter backing GameStop's eBay bid reveals a big issue with deal

GameStop's proposed $56 billion bid for eBay is facing financeability concerns after Moody's said the deal would be credit negative and projected leverage could approach 9x EBITDA before synergies. The $20 billion TD Securities financing commitment reportedly includes a condition that the combined company maintain investment-grade credit, which this leverage profile may threaten. With GameStop's market value only about $11 billion and limited clarity on funding, the transaction's execution risk is now a central issue.

Analysis

This is less an M&A story than a financing stress test disguised as a bid. The critical second-order issue is that the deal structure forces the buyer to preserve an investment-grade profile precisely when the implied leverage math points the other way; that creates a circular dependency where the financing only works if the acquisition is already de-risked, which is not the case. In practice, that makes the commitment more of a negotiating lever than a usable backstop, and it materially raises the probability that the offer becomes a publicity event rather than a consummated transaction.

For EBAY, the market should focus on the spread between headline deal optionality and actual closing probability. If the bid is non-binding in economic terms, the stock can still pop on takeover optionality, but the downside asymmetry is poor because any process failure likely leaves it trading back on fundamentals with a modest control premium evaporating quickly. The bigger winner, if this drags on, may be incumbent strategic buyers in adjacent software and e-commerce infrastructure that can consolidate assets opportunistically without needing near-term leverage tolerance.

For GME, the main risk is not just overpaying; it is signaling desperation into both equity and credit markets. A failed financing narrative would tighten the company’s equity currency and increase the cost of any future capital raise, while forcing management to either dilute into weakness or retreat, both of which are negative for sentiment over the next 1-3 months. The real catalyst is disclosure: if the financing letter is produced and the rating agencies or banks publicly signal that the IG condition is unenforceable, the trade likely unwinds fast.

The contrarian view is that the market may be underestimating the value of using this proposal as a coercive tool. Even if the transaction never closes, the bid can force strategic review, pressure competitors, and create a temporary valuation support layer. That makes EBAY attractive only as a short-dated optionality trade, while GME remains the cleaner short if the market starts pricing the probability of a broken deal and dilution spiral.

Key Decisions for Investors

• Short GME common or buy put spreads over the next 4-8 weeks; thesis is broken-financing headline risk and dilution overhang. Best risk/reward is a defined-risk bear spread rather than outright short due to squeeze potential.
• Trade EBAY as event-driven optionality: buy near-dated call spreads into any confirmation of financing, but size small because closing odds appear below headline odds. Exit on any public pushback from banks or ratings agencies.
• Pair trade: long EBAY / short GME on a 1-2 month horizon to isolate deal-process asymmetry. This works if the market keeps pricing takeover premium while penalizing financing credibility.
• If borrowing is available, consider a tactical short in GME only on strength after any deal-related spike; add above prior resistance and cover quickly if management produces credible third-party financing details.
• Avoid buying credit-sensitive peers on the assumption this is a broad M&A catalyst; the more likely spillover is a cautionary tightening of lender appetite for sponsor-like leverage, which is mildly negative for highly levered small caps over the next quarter.