GameStop's proposed $56 billion acquisition of eBay is facing significant scrutiny due to concerns about the financing arrangement that underpins the deal. The company has announced a $20 billion financing commitment from TD Securities, part of TD Bank, but this commitment comes with a crucial stipulation: the merged entity must maintain an investment-grade credit profile.
According to CNBC's David Faber, this requirement could jeopardize the deal. Moody's Ratings has indicated that the acquisition would be 'credit negative' for eBay, projecting that the combined company's leverage could reach nearly nine times its debt relative to earnings before interest, taxes, depreciation, and amortization (EBITDA), without factoring in potential cost-saving synergies.
Such a high level of debt would likely downgrade the company's credit rating below investment grade, which would violate the conditions of the TD financing package. This raises pressing questions about how GameStop plans to finance a transaction that exceeds its current market value of approximately $11 billion.
CEO Ryan Cohen has suggested that the company could issue additional stock to facilitate the deal, but details remain sparse. eBay has acknowledged receipt of the offer and stated that its board will review it. The situation is evolving, with reports from The New York Times and Semafor highlighting the uncertainties surrounding the financing letter