Despite eBay Rejection, GameStop Pushes Forward: Plans to Triple Authorized Shares to 2.5 Billion to Fund Potential Acquisition

Despite its recent $56 billion unsolicited takeover bid for eBay being firmly rejected, GameStop is far from giving up.

On May 30, it was reported that the retailer, famous as a meme stock, is proposing to its shareholders to significantly increase the number of authorized common shares from 1 billion to 2.5 billion. The market widely interprets this move as a way to create financial flexibility to continue pursuing the acquisition of eBay.

It is reported that this proposal to increase authorized shares will be voted on at the upcoming shareholder meeting, alongside the CEO compensation plan.

The authorization itself does not immediately cause share dilution but grants the board a highly flexible power—management can subsequently issue new shares at any price and for any purpose without needing further shareholder approval.

Analysts point out that for a major deal being planned behind the scenes, such flexibility is often 'invaluable.'

In fact, just a week ago, e-commerce giant eBay formally rejected the unsolicited takeover offer from GameStop CEO Ryan Cohen, calling it 'neither credible nor attractive.'

Cohen subsequently publicly vowed to complete the acquisition 'at any cost,' but in subsequent media interviews, when pressed on how to finance this massive transaction, his answers remained vague. This has heightened Wall Street's skepticism, given that eBay is nearly five times the size of GameStop.

According to Cohen's proposal, GameStop would acquire all of eBay's common stock at $125 per share, totaling approximately $56 billion, with a payment structure of half cash and half stock. GameStop claims to have secured up to $20 billion in 'highly confident' debt financing from TD Securities, but regarding the source of the remaining huge sum, Cohen repeatedly emphasized only 'half cash, half stock' in his CNBC interview, failing to provide a more detailed financing path, adding more uncertainty to this 'David vs. Goliath' acquisition.

Nonetheless, several bankers, lawyers, and industry analysts believe Cohen still has a slim, though not entirely impossible, path forward—he could launch a tender offer directly to eBay shareholders or call a special meeting to elect new directors more receptive to his offer.

To do this, Cohen needs to amass a sufficient stake.

GameStop recently disclosed that its 'economic exposure' to eBay has increased from about 5% to 6.6%, but the vast majority of this interest stems from derivative positions (a put/call collar strategy) linked to 29 million shares. These contracts only confer voting rights upon physical settlement.

Currently, GameStop directly holds only 25,000 shares of eBay stock, representing approximately 0.006% of the total shares outstanding. Even if all the derivatives were converted into voting shares, the ownership stake would still fall far short of the typical 20% threshold required to call a special meeting. Therefore, issuing new shares to raise funds for purchasing more eBay stock on the open market is seen as a crucial step for Cohen to break the deadlock.

In its letter to shareholders, GameStop attempted to allay concerns about the significant share increase, stating, 'We view our equity as precious and do not issue it lightly. Retaining authorized shares ensures GameStop can act decisively when the right opportunity arises.'

However, the market reaction has been mixed.

Based on its trailing 12-month revenue of $3.6 billion, GameStop currently trades at a forward P/E ratio of 19.1x. This valuation level already reflects market expectations that Cohen will announce a major deal or strategic shift. If shareholders approve the share authorization increase without a subsequent concrete M&A announcement, the potential for 2.5 billion new authorized shares could become a dilution overhang, pressuring the stock price downward.

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